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Bitcoin price liquidation risks are rising as BTC struggles to reclaim $18k




bitcoin (BTCPrice reaction was mixed on December 9 after a November report on producer prices in the US showed a 7.4% increase vs. 2021. The data indicated that wholesale costs continued to rise and that inflation could persist for longer than investors previously thought. Oil prices also remain a focus for investors, with WTI hitting a new yearly low of $71.10 on Dec. 8.

The US Dollar Index (DXY), a measure of the dollar’s strength against a basket of the most important foreign currencies, maintained its 104.50 level, but the index traded at 104.10, its lowest level in 5 months on December 4. This indicates low confidence in the US Federal Reserve’s ability to rein in inflation without causing a major recession.

Trader gutsareon noted that the volatile activity caused liquidation of long and short positions, but was followed by an initial unloading failure below $17,050.

According to the analysis, the stagnation of open interest on futures indicated a drop in bear confidence.

Regulatory uncertainty could have played a major role in limiting Bitcoin’s rally. On December 8, the US Securities and Exchange Commission (SEC) released new guidelines that can be publicly traded. Companies disclose their exposure to crypto assets.

The Securities and Exchange Commission’s corporate finance division said the recent crisis in the crypto-asset industry has “caused widespread disruption” and that US companies may have disclosure obligations under federal securities laws to disclose whether these events could affect their business.

Let’s take a look at derivative metrics to better understand how professional traders fare in the current market conditions.


Bitcoin margin buying deals have experienced a significant increase

Margin markets provide insight into how professional traders position as they allow investors to borrow cryptocurrencies to leverage their positions.

For example, one can increase exposure by borrowing stablecoins to buy bitcoin. Bitcoin borrowers, on the other hand, can only short the cryptocurrency because they are betting that its price will fall. unlike FuturesThe balance between margin calls and short positions is not always identical.

OKX/BTC stable margin lending ratio. Source: OKX

The above graph shows that the margin lending ratio of OKX traders increased from December 4 to December 9, indicating that professional traders increased their long leverage even after several failed attempts to break above the $17,300 resistance.

Currently at 35, the gauge favors stablecoin borrowing by a wide margin and indicates that short positions are not confident of building bearish leverage positions.

Options traders are still risk averse

Traders should analyze the options markets to understand if Bitcoin will eventually succumb to the bearish news flow. A delta deviation of 25% is a significant sign when arbitrage desks and market makers overcharge for upside or downside protection.

The indicator compares similar buy (buy) and sell (sell) options and will turn positive when fear spreads because the premium of protective call options is higher than risk call options.


In short, the deviation scale will move above 10% if traders are afraid of a Bitcoin price crash. On the other hand, generalized arousal reflects a negative bias of 10%.

Bitcoin 60-day options 25% delta skew: Source: Laevitas

As shown above, the delta skew improved by 25% between December 4th and December 9th, which indicates that options traders have reduced their risk aversion due to unexpected price swings. However, at the current 15%, the delta skew indicates that investors are still scared because market makers are less involved in offering downside protection.

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On the one hand, the lack of open interest increasing with Bitcoin testing the day’s low on December 9 seems encouraging. However, excessive use of margin indicates that buyers may have to reduce their positions during sudden downward moves.

The longer it takes Bitcoin to recover $18,000, the riskier the risks of margin buying become. Traditional markets continue to play a major role in determining the direction, so a possible retest to $16,000 cannot be ruled out.