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This week has seen some bearish price action for bitcoin, and what’s the cause? One of the main catalysts is the leverage in the derivatives market.
When looking at the perpetual futures funding rate, we can see downturns in bitcoin price coupled with a reduction in funding rate from the highs. What this is showing is that the derivatives market bulls got ahead of the spot bitcoin market, and were speculating with leverage on a rise in price. If/when this rise in price does not come, these traders are caught offsides, and a leverage unwind occurs.
Supply: Glassnode
Beneath we are able to see the present state of the perpetual swaps bitcoin market, which reveals principally impartial positioning following the dip under $60,000: a traditional shakeout.
One of many issues that’s so typically misunderstood in regards to the bitcoin market is that the value discovery and volatility that exists out there is a manner of shaking off any and all market contributors which can be overexposed/leveraged. Giant patrons and sellers within the bitcoin spot market oftentimes intently observe the developments within the derivatives market, as a result of they know that if the derivatives market finds itself offsides both to the upside or to the draw back, some huge cash may be made by forcing these merchants to unwind/exit their positions at a loss.
That is what has unfolded lately. Nothing in regards to the on-chain accumulation dynamics nor macroeconomic backdrop has materially modified, relatively the bitcoin market is shaking off the speculators seeking to seize outsized returns in the course of the imminent subsequent leg up.
Volatility is the value you pay for returns within the bitcoin market, and people who look to amplify these returns with extra leverage could discover themselves with far much less and even no bitcoin in the event that they aren’t an skilled at managing threat.
This is the reason spot bitcoin in private self-custody is by far one of the simplest ways to allocate to the bitcoin market. Brief-term volatility is simply noise if you happen to perceive what you might be allocating in the direction of.
