Bitcoin is undergoing a liquidation phase, as evident by the flash crash, but key derivatives indicators show that investors are still throwing their weight behind the premier cryptocurrency of the world.
Flash crash in prices
On August 2, Bitcoin’s price dropped $1,500 has futures contracts worth over $1 billion were liquidated. This figure represents 18% of the total open interest in Bitcoin which is valued at $5.6 billion. The move caused the price to go back to $10,560. This also led to a sharp decline in the price of other digital currencies.
Even though there was massive liquidation, the futures open interest recovered half of the loss within 48 hours. The open interest is now at $5.2 billion. The put/call ratio remained unchanged, while options 25% delta skew, contango (basis), funding rate, etc. also remained at their previous levels.
Investors still positive about Bitcoin
The positive expectations for Bitcoin prices remain unchanged among investors, despite the sudden fall in prices. There isn’t a single indicator that is pointing out towards a bear market, even though there is a lack of bull indicators as well. This crash is different from May when a $1,400 price drop which liquidated over $1 billion from the markets turned a majority of indicators bearish. This time, things look more stable. At the time, the Bitcoin futures open interest rate suffered a loss of $1.2 billion and took 22 days to come back to the $3.6 billion marks. This time it took less than 2 days.
Contango is a positive situation in the market which shows slightly positive annualized rates. It is measured by a 3-month futures contract premium to current spot levels. The 1-year average was 6.5% and the most recent premium reached a 15% annualized basis rate before slumping. It currently stands at 11.5%, which is still almost double the 1-year average. This happens as professional traders are demanding more money to postpone the settlement.
In May, the 3-month annualized futures basis were in the negative territory during the May flash crash. It took about a month for the levels to go back to 5%.