With Bitcoin’s price falling to as low as $ 47,450, and losing over 8% in the last three days, the expectation of a New Year’s rally seemed to fade away. A pull below the $ 50,000 support triggered sales, which were followed by another price pullback below the $ 48,000 support, with Bitcoin trading at the time of writing.
Ahead of Friday’s expiration of 124.7K option contracts, the recent downturn below the $ 48K level may lead the top asset both ways.
The options market heated
The combined trading volume of Bitcoin and Ethereum options increased + 443% in 2021 to $ 387 billion for the year ended December 27th. Last year, BTC and ETH options saw a combined trading volume of over $ 71 billion.
Over the past week alone, OI has seen an increase of about $ 2.5 billion, primarily led by traders at Binance. Although Futures OI is still away from all-time highs, rapid increases in leverage may indicate a cluster of stop-loss and liquidation levels in close proximity to the current price.
Data from Glassnode further presented how this leverage increase can add greater probabilities to a potential short or long term short-term pressure.
A general decline in trading volume is typically seen towards the end of the year, but on a 7-day average basis, futures market volume has seen a YTD decline of 16%. Thinner volume and rising OI in a concentrated stock market are a combination that could be beneficial for at least a localized leverage squeeze over the coming weeks.
With the BTC leverage ratio at ATH levels, the possibility of a correction to remove all excess leverage was in play as prices fell.
HODLers are still stuck
Historically, the market saw 32% supply in losses at the bottom of $ 29K in July, while 26% of BTC supply is currently in ‘loss’ territory. Nevertheless, some long-term holders have not touched their BTC for over five years, with over 23% of BTC’s 21 million supplies remaining untouched during the period.
For now, long-term holders have marginally trimmed their BTC positions in recent weeks, despite falling prices by nearly $ 20,000, or -24.4%, since BTC ATH. Investors’ offerings only fell to 13.3 million from 13.4 million, a slight change from the sharp fall in prices.
Analyst Rekt Capital highlighted Bitcoin’s return visit to the 21-week EMA, where the coin faced rejection. Historically, BTC has performed downward wicks in the orange area during this red genetic test, allowing for another visit to the lower $ 44K level unless 21-week EMA is established as short-term support.
If the $ 40K- $ 42K range is retested, it could likely be a local bottom in the medium term, but for now with year-end options expiring in place and the possibility of a leverage squeeze BTC’s price may visit lower levels in the coming days.