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Why Did The Bitcoin Value Dip From All-Time Highs?

11/13/2021

Digging into leverage dynamics can clarify why the bitcoin value dipped under $63,000.

The under is from a current version of the Deep Dive, Bitcoin Journal’s premium markets e-newsletter. To be among the many first to obtain these insights and different on-chain bitcoin market evaluation straight to your inbox, subscribe now.

Supply: TradingView

As revealed in Wednesday’s The Each day Dive #096, bitcoin was up 3.9% in a single hour after the Client Value Index studying, solely to fall once more in a sequence of BTC-margined lengthy liquidations. Complete lengthy liquidations for the day have been a number of the largest liquidations over the previous few months however pale compared to the liquidations in March by April earlier this yr. 

Supply: Coinglass (Bybt)

Let’s dig into a number of the leverage dynamics that led to the sharp fall from all-time highs again all the way down to $62,800.

Futures Open Curiosity 

Among the many most necessary issues to know about bitcoin derivatives is the varieties of collateral that can be utilized. In bitcoin derivatives markets, you may both use crypto margin (overwhelmingly BTC however sure platforms permit varied altcoins for use as collateral) or {dollars}/stablecoins as collateral. When getting into a derivatives contract with bitcoin as collateral, in case you are going lengthy (speculating on value to rise), then you might be left uncovered if value declines to each a declining PNL (revenue/loss) in addition to collateral that’s declining in worth. Thus, bitcoin-margined derivatives are sometimes the offender in massive market drawdowns and liquidation occasions.

Main as much as yesterday’s all-time excessive, the mixture futures open curiosity for bitcoin-margined spiked in an enormous approach (in BTC phrases, which normalizes for greenback volatility), touching 191.2K BTC, up from the 150k BTC vary that was seen the primary time bitcoin broke above $65,000, exhibiting that merchants have been aggressively levering up:

Supply: Glassnode

Under is identical chart however denominated in {dollars} as a substitute, exhibiting the overall open curiosity in bitcoin-margined futures declining by greater than $1 billion from yesterday:

Supply: Glassnode
Supply: Glassnode

Displayed above is the mixture open curiosity (in bitcoin phrases) by trade for context. The obvious pattern is the rising dominance of Binance within the futures market (extra on this in a second).