The Bitcoin price (BTC/USD) broke down its $60,000 support this week, reaching today a monthly low at $55,640. The BTC/USD pair lost more than 19% in 9 days, tumbling from the all-time-high at $69,000.
We mentioned last week that the aggregated open interest of Bitcoin futures (in USD) had reached a new all-time-high at $28.85 billion, showing the extreme leverage that predominated. However, as the price spread between BTC futures and spot also died down last week, the case scenario of a severe correction seemed more and more unlikely. The current price correction can hardly be explained by excessive market leverage. $1.6 billion worth of long futures positions have been liquidated in the last 4 days according to coinglass/bybt: but this is only half the size of the long future liquidations that happened within the span of a few hours during the September 7th correction. If the greed sentiment was already fading before the price correction, it is now almost completely eliminated. Indeed, the implied annualized rates from the futures market now draw a flat curve across all expiration dates, sitting slightly below the 10% level. In other words, the Bitcoin derivatives market looks now very much healthy.
Source WIrex - Based on Deribit data. The i,plied future annualized rate is produced by dividing the the future-spot spread with the BTC/USD spot price and compounding the rate daily to annualize it: (1+spread/spot)^(365/days_till_maturity)-1
The Long-term holders net position slipped into the red this week as they currently hold 13.4 million Bitcoins, against 13.5 million recorded at the peak according to glassnode. glassnode points out that the 100,000 Bitcoin difference ‘does not appear to be spent in panic’. The Bitcoin netflows to online exchanges are still negative this week. The Bitcoin reserves that are held on exchanges are also severely going down as reported by cryptoquant. A net amount of 15,200 BTCs left online exchanges in the past three days.
Source Cryptoquant. All-Exchanges Netflow. ‘The difference between the number of BTC flowing into and out of all exchanges’ wallets. (If positive, inflow>outflow, an increase in BTC supply for selling, altcoins purchasing, and margin trading.)’
Most metrics support that the current correction is driven by short term profit takers. It seems to be a technical correction rather than a fundamental one. It appears to be one of the many healthy corrections typically observed in a bull market. Still, the high volatility could ‘technically’ send the Bitcoin price near the lower bound of the wider bull channel that started in July 2021. The corresponding range is $50k-$51k for the Bitcoin price, and $3,600-$3,700 for the Ether price. But regardless of the short-term volatility, the long-term potential is still very much intact.
Among positive news this week, Bitcoin finally deployed the Taproot upgrade last week-end. This first major upgrade since Segwit was approved in June by over 90% of the Bitcoin miners. Among the benefits of the upgrade that we listed in our June article:
It improves the efficiency of the P2SH upgrade (Pay-To-Script-Hash). As a reminder, P2SH lets a user define the required conditions to spend Bitcoins, namely after a specific date (timelock), or with a set of private keys (multisig).
It unlocks the potential for cheaper and more scalable smart contracts on the Bitcoin blockchain.
The Taproot upgrade is already supported by BitGo for instance. Bitgo users can already create ‘Taproot addresses’.
This week’s best performers, namely Avalanche (AVAX +29%) and Decentraland (MANA +25%), are supported by exciting or unusual headlines. Deloitte announced that it intends to use the Avalanche blockchain to ‘improve security, speed and accuracy of Federal Emergency Management Agency reimbursements’ in the US. On the other hand, the funny one, Decentraland is still surfing on the metaverse trend. The Barbados country established a consulate (or a metaverse embassy) in Decentraland. Allegedly, the public authorities even made sure that the virtual consulate complied with worldwide law and the Vienna Convention.