Bitcoin (BTC) experienced a 7% price drop on July 8 when it retested the $53,354 level, resulting in the liquidation of $62 million in leveraged long positions. However, within just 8 hours, it rallied 7% to reach $58,215, catching bears off guard and forcing the termination of $96 million in short positions.
The sudden intraday pullback of Bitcoin took short sellers by surprise. It retraced back to the exact same level of $57,200 from 24 hours earlier. The liquidation data suggests that those betting on a price decline used high leverage, possibly 20x or more, which caused a significant increase in open interest on July 7, equivalent to $355 million. However, the price increase on July 8 completely erased all the gains in open interest.
This data helps explain why BTC derivatives still display moderate bullishness, providing a positive outlook for reclaiming the $60,000 mark soon.
Cryptocurrency analysts believe that the transfer of 16,308 BTC by the German government to market makers and exchanges in the past 24 hours played a crucial role in reducing Bitcoin traders’ appetite. However, this event also presents a silver lining for bulls as half of the seized coins have already been sold, indicating a decrease in selling pressure.
According to trader and influencer RookieXBT, Bitcoin investors are likely to wait until the German government completes their sales before adding positions. Additionally, the potential sell-off from the Mt. Gox bankruptcy estate after 10 years could have an impact on the market. On the other hand, RookieXBT points out that the failed FTX exchange is expected to distribute cash to investors affected by its bankruptcy, which could be used to purchase cryptocurrencies.
The rest of the analysis focuses on long-term aspects, including the United States central bank shifting to an expansionist monetary policy and the outcomes of the U.S. Presidential election. The ongoing stock market rally, which reached another all-time high on July 8, is often overlooked by analysts, despite companies holding a record $4.11 trillion in cash and equivalents, according to Bloomberg.
The S&P 500 benefits from the high margins of tech companies and offers a relatively safe investment through dividends and the potential for market consolidation. Even in a slower economy, cash-rich companies can acquire competitors and expand their operations at a lower cost. This offsets the recessionary environment to some extent as companies face less competition in hiring.
Despite the factors such as the German government liquidating Bitcoin and potential FTX repayments, Bitcoin’s bullishness also receives support from the futures and options markets. In stable market conditions, monthly contracts typically trade at a premium of 5% to 10% over spot markets due to their longer settlement periods. The annualized premium for BTC futures has stabilized near 8% since July 7, indicating a relatively positive sentiment despite the 11% price decline of Bitcoin over the past week.
Analyzing the options market reveals further insights into the dynamics at play. In an optimistic market, put options become cheaper than call options, resulting in a -7% delta skew. Conversely, a skew metric above 7% indicates fear of price corrections. The current -2% skew in the Bitcoin options market reflects a healthy market sentiment, which is noteworthy as the BTC price approaches its lowest levels in over four months. However, it remains uncertain if the $55,000 support level will hold, given the fear, uncertainty, and doubt surrounding miners’ sell pressure and the potential negative impact on Bitcoin in the event of an economic recession.
Disclaimer: This article is for general information purposes and should not be taken as legal or investment advice. The views and opinions expressed here are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.