The Bitcoin Rally: Signs of Slowing in the Derivatives Market

Since Donald Trump's US presidential election victory, Bitcoin has witnessed an unprecedented rally. However, recent data indicates that this record-breaking surge is beginning to show signs of moderation in the derivatives market. K33 Research has pointed out that the premium paid for CME-listed Bitcoin futures contracts over the spot market price, a commonly used instrument by US-based institutional investors, has declined. Crypto data tracker Amberdata shows that the open interest for put options with a strike price of $80,000 has surged in the past 24 hours. Vetle Lunde, the head of research at K33 Research, stated that markets seem to be cooling down as the CME basis has trended lower since yesterday's close, hovering around 10% throughout the day, down from the 13-16% basis regime since the election. This might suggest a moderating of risk profiles.Bitcoin is currently trading at around $89,500 in New York, down from its all-time high of $93,462 reached on Wednesday. Since Trump, who is now a supporter of Bitcoin, defeated Vice President Kamala Harris last week, the original cryptocurrency has jumped more than 30%. The liquidation of leveraged bullish bets across the crypto market has contributed to the retreat from the record high. Coinglass data shows that liquidations of long positions were twice as high as for bearish bets in the past 24 hours, at $447 million and $207 million respectively. Earlier in the rally, the liquidations were more evenly split.Possible profit taking after the manic run could be another factor driving the current downturn. As $90,000 is the price level with one of the largest open interest positions in call options, on-chain futures and options trading platform Crypto Valley Exchange CEO James Davies believes that this could lead to profit taking. He said, "Crazy speculative days in the market, big profit taking in the last few hours. $90k is a massive level in the call options open interest."Traders attribute the rally largely to fresh demand from the spot market, as seen in heavy flows into exchange-traded funds backed by the digital asset and relatively moderate leverage. The funding rate for Bitcoin perpetual futures traded on offshore exchanges increased after declining earlier this week. Options traders are showing more interest in calls with strike prices of $110,000 and $120,000, according to data from the largest options exchange Deribit.Davies further stated, "It’s all pure speculative trading right now, expect lots volatility and a lack of clear signals for a while whilst we wait for policy announcements in the US. As we get closer to the November options expiry, it will be interesting to see if $90k becomes a resistance level, or if we are well past it."

Bitcoin's Rally Faces Slowing in Derivatives Market

Bitcoin's Post-Election Surge and Its Impact

After Donald Trump's victory in the US presidential election, Bitcoin experienced a remarkable rally. It jumped more than 30% as Trump became a supporter. This surge was driven by various factors such as fresh demand from the spot market and relatively moderate leverage. However, as time passed, signs of slowing began to emerge.

The CME-listed Bitcoin futures contracts premium over the spot market price started to decline. This indicates a change in the market sentiment and a potential cooling off of the rally. Open interest for put options with a strike price of $80,000 surged, suggesting that investors are becoming more cautious and hedging their positions.

The Role of Liquidations in the Retreat

The liquidation of leveraged bullish bets across the crypto market played a significant role in the retreat from the record high. In the past 24 hours, liquidations of long positions were twice as high as for bearish bets, reaching $447 million and $207 million respectively. This shows that the market is becoming more balanced and that excessive speculation is being corrected.

Earlier in the rally, the liquidations were more evenly split, but now there is a clear shift towards the liquidation of long positions. This indicates that investors are taking profits and reducing their exposure to Bitcoin.

Profit Taking and Future Outlook

Possible profit taking after the manic run is another impetus for the current downturn. As $90,000 is the price level with one of the largest open interest positions in call options, traders are closely watching this level. If Bitcoin fails to break above $90,000, it could face resistance and lead to further selling.

Options traders are aiming higher with more interest in the calls with strike prices of $110,000 and $120,000. This shows that they are still optimistic about the long-term prospects of Bitcoin but are cautious in the short term. As we approach the November options expiry, it will be interesting to see how the market behaves and if $90k becomes a resistance level.