Bitcoin Price Stabilizes After Brutal Drop; Futures Trading Suggests Bears are Still in Control
Bitcoin’s massive selloff showed signs of abating Wednesday, as prices consolidated above $4,500, suggesting that the market may have found an interim bottom. However, activity in the futures market suggests traders are still keen on shorting BTC, which could open the door to further losses in the near term.
The bitcoin price reached a session low of $4,295 on Coinbase before staging an immediate recovery. At the time of writing, the San Francisco-based exchange was quoting bitcoin’s price at $4,536, which represents a gain of 3.2% from the previous day.
Bitcoin was trading at a $140 premium on Bitfinex, with the latest price quoted at $4,672.
Aggregate pricing data courtesy of CoinMarketCap shows a price-per-coin of $4,582, a gain of 2.2% on the day. That gives bitcoin a total market capitalization of $79.5 billion. At the start of last week, the largest digital currency had a market cap of around $110 billion.
In the last 24 hours, trade volumes have fallen by roughly 10% to $7.4 billion, which is still much higher than the recent average.
Derivatives Trading Surges
Interest in bitcoin futures contracts has picked up sharply amid the downturn, with derivatives platform BitMEX beginning to dominate the market. As Hacked reported on Tuesday, the platform accounted for more than 41% of bitcoin’s daily trade volumes on cryptocurrency exchanges. On Wednesday, that number had fallen to just over 39%. In terms of daily turnover, no other exchange even comes close.
BitMEX has processed a total of $5.3 billion worth of trades over the past 24 hours, according to CoinmarketCap. Over the past seven days, volumes have exceeded $14.1 billion. It ranks first along both metrics.
According to the October edition of CryptoCompare’s Exchange Review, BitMEX has accounted for roughly 90% of the volume for bitcoin futures. This came at a time when bitcoin trades on traditional futures exchanges, such as CBOE and CME, were relatively low. However, they too have experienced a notable surge in volumes over the course of the recent selloff.
As Bloomberg recently reported, the combined open interest in CBOE/CME bitcoin futures was equivalent to 22,266 BTC as of Monday, the highest on record. CME’s current contract, which allows investors to profit from bitcoin’s decline, will expire at the end of the month.
The above information suggests market participants are shorting bitcoin at an ever increasing rate, which eventually drove prices to the lowest level in over 13 months. The free-fall has negated fundamental facts and technical inflection points, creating a sense of confusion about where the new floor may end up. It’s not entirely clear whether Tuesday’s low represents the new bottom or whether investors can expect a renewed selloff in the near term. Whatever the case may be, long-term holders can expect an extreme discount on bitcoin’s price for the foreseeable future.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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