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Market AnalysisData shows derivatives had little to do with Bitcoin’s drop to $29K

Data shows derivatives had little to do with Bitcoin’s drop to $29K

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After a brief recovery to $41,000 on June 14, Bitcoin (BTC) investors might have thought that the bear market was finally over. After all, it was the highest level since May 21 and the date that MicroStrategy (MSTR) announced a successful $500 million debt offering

The funds are usually available in one or two business days, and the proceeds would be used to acquire even more Bitcoin for the business intelligence company’s balance sheet. MicroStrategy followed this fund-raise with another surprise filing to sell up to $1 billion of its stock to buy even more Bitcoin.

However, a 30% drop took place over the following week, causing Bitcoin to reach its lowest level since January 22. The $28,800 bottom might have lasted less than fifteen minutes, but the bear sentiment was already established.

The sell-off was largely attributed to Chinese miners’ capitulating after they were forced to abruptly shut down their operations. Furthermore, on June 21, an official People’s Bank of China (PBoC) reiterated that all banks and payment institutions “must not provide account opening or registration for [virtual currency]-related activities.”

The open question is whether derivatives played a vital part in the correction or at least displayed stress signs that may indicate an even more dangerous second leg down?

The futures premium showed no signs of backwardation

The futures premium (or basis) measures the gap of longer-term futures contracts to the current spot (regular markets) levels. Whenever this indicator fades or turns negative, this is an alarming red flag. This situation is also known as backwardation and indicates a bearish sentiment.

utures should trade at a 5% to 15% annualized premium in healthy markets, otherwise known as contango. On the worst moment on June 22, this basis bottomed at 2.5%, which is considered bearish but not enough to trigger any red flag.

There was zero panic from top traders

The top traders’ long-to-short indicator is calculated using clients’ consolidated positions, including spot, margin, perpetual and futures contracts. This metric gathers a broader view of professional traders’ effective net position.

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