Bitcoin Bull Market Speculation Rises with Price Surge, BTC Futures Increase, and Market Theories Abound
Summary:
The recent surge in Bitcoin's price has sparked market speculation of a potential bull run. The price rally resulted in $230 million liquidations for bearish traders and a rise in BTC futures open interest, suggesting a surprise for short-position traders. Theories have circulated about market makers experiencing a gamma squeeze and the possible influence of Changpeng "CZ" Zhao, who may have used BNB as a margin collateral on Venus Protocol. New leveraged positions entering the market could potentially be influenced by news regarding BlackRock's Bitcoin ETF request. Despite the uncertainty, there's evidence to justify a rally beyond the $35,000 mark.
The buzz this week is mainly around Bitcoin's (BTC) recent pricing trends and market sentiments, which have sparked conversations about the kickoff of an anticipated bull market. From October 22 to 24, a surge in the price of Bitcoin by 16.1% resulted in $230 million liquidations for bearish traders with futures contracts. Moreover, a noticeable shift in Bitcoin's open interest - an indicator of total futures contracts active - further suggests that Bitcoin's short position traders were caught off guard on October 22, albeit without significant leverage.
During this surge, BTC futures open interest rose from $13.1 billion to $14 billion, contrasting the August 17 situation where Bitcoin's price nose-dived by 9.2% within 36 hours compelling $416 million in long liquidations, despite the smaller price shift. Bitcoin's futures open interest fell from $12 billion to $11.3 billion during this period.
The updated data supports the circulating theory of a gamma squeeze, implying that market makers had a "chase" on their stop losses. According to user NotChaseColeman on X social network (previously Twitter), when Bitcoin's price climbed over $32,000, arbitrage desks likely had to hedge short positions which sparked the rally to $35,195. However, the rise in BTC futures open interest contends with the short squeeze theory, suggesting that even with significant liquidations, demand for new leveraged positions outstripped the force-majeure liquidations.
An intriguing theory proposed by M4573RCH on X social network suggests that Changpeng "CZ" Zhao might have used BNB as a margin collateral on Venus Protocol, a decentralized finance (DeFi) app, after he was compelled to sell Bitcoin to boost the price of the BNB token. According to this theory, CZ would have repaid Venus Protocol's interest and repurchased Bitcoin using BNB to adjust positions after successful maneuvering.
Notably, BNB tokens worth $278 million (1.2 million tokens) are on the platform. Assuming a single entity controls half the position, this would be enough to create a $695 million long position using a 5x leverage on Bitcoin futures.
Speculations like these surrounding Venus-BNB manoeuvering or Bitcoin derivatives' gamma squeeze can neither be entirely confirmed nor dismissed. However, the expansion in BTC futures open interests points out the entry of new leveraged positions into the market. This movement might have been influenced by the news of BlackRock's spot Bitcoin ETF request being listed on the Depository Trust & Clearing Corporation (DTCC), despite not improving the probability of approval by the US Securities and Exchange Commission.
The evaluation of BTC derivatives metrics can provide insights into how professional traders are positioning themselves after the unexpected rally. Usually, Bitcoin monthly futures trade 5% to 10% higher annually compared to spot markets, proving the sellers' increased demand to delay settlement.
On October 24, Bitcoin futures premium reached 9.5%, the highest in over a year. More importantly, it surpassed the 5% neutral threshold on October 23, marking the end of the 9-week bearish sentiment with low demand for leveraged long positions.
To understand whether Bitcoin's break above $34,000 triggers excessive optimism, one needs to monitor the Bitcoin options markets. Periods of anticipation of a Bitcoin price drop usually see the 25% delta skew rise above 7%, while periods of optimism generally see it drop under -7%.
The Bitcoin options' 25% delta skew shifted from neutral to bullish on Oct. 19 and maintained its trajectory until reaching -18% on October 22. Signifying high optimism, put options were trading at a discount. The current -7% level hints at balanced demand between call and put options.
This recent price hike led professional traders to shift from a bearish mood. However, call options pricing remained unchanged, signalling a positive trend. Meanwhile, with futures premium sitting at a moderate 8%, no evidence indicates excessive leverage from buyers.
Even with the ongoing conjecture concerning the approval of a spot Bitcoin ETF, substantial proof supports a healthy inflow of funds, justifying a rally beyond the $35,000 benchmark. The viewpoints, thoughts, and beliefs expressed herein strictly belong to the author and may not necessarily represent or reflect the opinions of Cointelegraph.
Published At
10/25/2023 7:35:50 PM
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