With BTC price dropping as low as $ 47,136, a 10% loss in the past 3 days, the anticipation of a New Years rally seems to be fading. A slide below the $ 50,000 support triggered a sell order, followed by a further decline below the $ 48,000 support. Worse still, Bitcoin is currently trading at $ 46,892 at the time of writing.
Before the 124,700 options expire on Friday, the recent drop below $ 47,000 could move the leading asset either way.
Options market heats up
The total trading volume of Bitcoin and ETH options increased + 443% in 2021 to $ 387 billion on December 27th. Last year, BTC and ETH options had a total trading volume of more than $ 71 billion.
BTC options trading volume | Source: Coinglass
Just last week, open interest soared about $ 2.5 billion, largely due to traders on Binance. While futures open interest is still far from all-time highs, rapidly increasing leverage can point to clusters of stop-losses and liquidations near current prices.
Glassnode data shows that such an increase in leverage increases the likelihood of a possible short or squeeze long in the short term.
Bitcoin Futures Open Interest | The source: Glass knot
The trading volume usually decreases towards the end of the year. On a 7-day average, the volume of the futures market has fallen by 16% since the beginning of the year. Lower volumes and increased open interest on a centralized exchange are a combination that will favor at least one local leverage squeeze in the coming weeks.
With the BTC leverage at ATH, there is the option of a correction to eliminate the excess if the price goes down.
Estimated leverage of all exchanges | The source: KryptoQuant
HODLers are still “immobile”
Historically, the market suffered a 32% loss of the $ 29,000 supply in July, while 26% of the BTC supply is currently in the red. However, some long-term owners haven’t touched BTC in more than 5 years, with over 23% of the 21 million BTC on offer still not being moved during that period.
Although the price has fallen nearly $ 20,000 (or -24.4% since ATH) in the past few weeks, long-term owners have only trimmed their BTC positions slightly. The offer held by investors only fell from 13.4 million to 13.3 million, a small change compared to the sharp drop in prices.
Complete range of long-term owners | Source: Glassnode
Analyst Rekt Capital highlighted Bitcoin’s return to the 21-week EMA, which saw the price decline. Historically, BTC has made bearish wicks in the orange zone during a red retest so it is likely to slide back towards $ 44,000 unless the 21-week EMA is set as support next time.
If it re-tests the range between $ 40,000 and $ 42,000 it could hit a local low in the medium term, but now that year-end options expire and there is the possibility of leverage, prices could drop to lower lows in the near future.
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