Did Omicron Or A Bitcoin Futures Short Last Week Trigger A Weekend Selloff?

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A crypto flash-crash on Saturday triggered cascading liquidations due to Omicron uncertainty, fears of further Fed tapering, and the sale of $500 million of bitcoin, sending bitcoin to a low of $42,330, while ether was partly underperformed by both currencies. They are currently trading at $51,500 and $4,358 respectively – before recovering from the downside.

There were some warning signs. For example, in an excerpt published two days before the price drop, the Commodity Futures Trading Commission (CFTC) Weekly’s Businesshala analysis detailed how wealthy retail traders collectively took massive short positions worth $500 million, the same At the time Omicron was in the limelight. The estimated sum of this bet was not enough to move bitcoin daily trading volume of tens of billions of dollars, but it was an indicator of overall negative sentiment over the weekend and its notoriously thin liquidity.

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That said, these traders didn’t have any big scores from the weekend’s price drop.

The latest CFTC Commitments of Traders (COT) report released on Sunday confirmed that the big-short story ultimately lacked bearish sentiment among retail traders – unusually large retail short positions closed as of Tuesday 30 November. Retail traders held their short while bitcoin was in the $56,000 to $60,500 range and closed it somewhere within the $53,000 to $59,000 range, meaning they could have made a small profit. The shorter time frame of this bet is in line with the slightly longer period seen in October when the same group initiated a large buy (long) bitcoin position. These traders seem to follow a one to two week agnostic long/short trading approach. This contrasts with property managers for example who are only long term these days.

Winners and Losers Sometimes Appear

So if retail traders didn’t benefit at all from great volatility, who would have done so? The answer appears to be commercial traders, who are specialist financial intermediaries who help offset trading risk to third parties and could have scored opportunistically in this instance.

In a rare example of counterparty transparency, last week’s data showed retail traders potentially trading counterparties for large sell (short) positions, something that is difficult to know because this is an electronic, anonymous market. All futures trading on the CME exchange requires that the buy order at a given price match the seller order. To account for the said retail decline in short contracts, another entity had to close longer contracts more or less simultaneously and/or boost its short position. The latest analysis by Businesshala showed how commercial traders shorted long bitcoin futures (see Decrease in open interest contracts) and promoted shorts by the same number of contracts that short retail traders shorted.

The biggest winners this past week in the futures market, however, were hedge funds. But they didn’t realize the gains until the futures market opened at 6 p.m. Eastern Time on Sunday, but by then bitcoin had recovered from its low of $42,330 to $47,000.

Outlook

Bitcoin is not yet out of the woods and subject to a sell-off in the broader market, but sentiment improved as it became known that the El Salvador government had bought into the bitcoin price drop. From a technical point of view, the recent low of $42,330 exceeded the most recent low of $39,600 on September 21 and this bodes well for bitcoin bulls, which will move towards the $55,000 and $60,000 levels before the end of the year. Can stage a gradual challenge.

It is pertinent to note that it is precisely at these times — when an attractive asset undergoes temporary volatility but remains on the upside — that shrewd long-term investors can buy attractive securities on the cheap. Apart from bitcoin, many crypto and crypto mining stocks have seen sharp declines and it would not be surprising if they become anyone’s delayed Cyber ​​Week special.

Bitcoin: $51,000 – 26% off November 10 high

GBTC: $38.40 – 28% down from Nov 9 high

MARA: $41.81 – 45% lower from Nov 12 high

MSTR: $596 – 33% off Nov 9 high

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