In a significant turn of events within the cryptocurrency market, Bitcoin faced a notable decline that resulted in the liquidation of approximately $1.65 billion in long positions. This downturn marks one of the largest liquidation events of the year, as the top cryptocurrency dropped less than 4% on Monday. The fallout affected not only long positions but also saw about $145 million in shorts wiped out.
Despite the turmoil, implied volatility—an indicator of future expectations among options traders—remained surprisingly low, according to insights from Adam Chu, chief researcher at GreeksLive. This muted reaction is particularly intriguing given the scale of the liquidations. However, there has been a marked increase in put-buying activity, suggesting that options traders are preparing for potential further declines in Bitcoin’s price this month.
Sean Dawson, head of research at on-chain options platform Derive, indicated a “heightened demand for puts” as traders express concerns over continued downward trends. Additionally, Max Shannon, senior associate at Bitwise Europe, noted an ongoing bearish sentiment reflected in the consistent uptrend of the 1-week and 1-month put-call delta skew, which recently reached its highest levels since early August. This metric indicates an increase in put-buying among investors seeking downside protection.
Shannon further speculated that the negative sentiment might be influenced by “sell-the-news” reactions following the recent Federal Reserve quarter-point rate cut on September 17. While traditional markets like the S&P 500 and gold experience positive returns—3.68% and 12.41% respectively—Bitcoin and Ethereum have seen decreases of 1% and 3% in the same timeframe.
Despite the current bearish activity and market-specific pressures, both Chu and Dawson maintain a bullish outlook for the coming months. Chu emphasized that the market sentiment remains optimistic for the fourth quarter, anchored by bullish positioning which began gaining traction as early as last month. Dawson echoed this sentiment, predicting inevitable upward trends in prices over the next three to six months. He also anticipates a sharper recovery for Ethereum compared to Bitcoin due to market dynamics involving net short gamma positioning by market makers.
As traders navigate this volatile landscape, the focus remains on potential shifts within the market, as speculations continue about what lies ahead for cryptocurrency valuations in the months to come.
