Yesterday #Bitcoin pumped thousands of dollars within hours after weeks of sideways price action, and many might be wondering, why?
Here's a thread on derivatives, naked shorting, and $BTC accumulation
๐งต
Here's a thread on derivatives, naked shorting, and $BTC accumulation
๐งต
1. In a matter of hours, $BTC pumped from mid 34k up to nearly 40k on many spot exchanges, and actually hit 48k(!!!) on the BTC/USDT Perp Futures Contract on Binance.
48k? How does that even happen? Let's dig in:
48k? How does that even happen? Let's dig in:
2. First off, for bitcoin or more broadly crypto derivatives, you need underlying collateral to enter a margin contract.
Derivatives are used to place directional bets on price, and major dislocations in derivatives of an asset can lead to explosive moves in either direction.
Derivatives are used to place directional bets on price, and major dislocations in derivatives of an asset can lead to explosive moves in either direction.
3. Since May, open interest on Binance futures, specifically cash margined (using #USDtether ), had seen explosive growth.
Why is this important? Here is where it get's interesting:
Why is this important? Here is where it get's interesting:
4. As funding on Binance shows, traders became increasingly bearish, and were shorting BTC using perp futures.
But the important thing to understand a large percentage of this shorting was done using stablecoins as collateral.
But the important thing to understand a large percentage of this shorting was done using stablecoins as collateral.
5. In the middle of May, $BTC aggressively sold off in large part due to the amount of bitcoin margined longs who got wiped out (i.e. traders using BTC as collateral to long bitcoin).
Yesterday, we saw the opposite.
Yesterday, we saw the opposite.
6. Traders on derivatives exchanges, specifically Binance, were using stablecoins to naked short bitcoin (i.e. shorting bitcoin over the derivatives market that didn't exist) as it was all done with collateralized stablecoins.
Here's % of OI of coin margined/USD margined.
Here's % of OI of coin margined/USD margined.
7. When you short bitcoin with $BTC collateral, your collateral value rises in value to somewhat offset falling PNL.
However, when you naked short with dollars, this dynamic doesn't exist.
Last night these derivative market bears became forced buyers
However, when you naked short with dollars, this dynamic doesn't exist.
Last night these derivative market bears became forced buyers
8. In May, bitcoin crashed and futures open interest plummeted.
Last night, bitcoin pumped while open interest also... plummeted.
What you see here is naked shorts getting blown out, about ~$800 million on Binance alone.
Last night, bitcoin pumped while open interest also... plummeted.
What you see here is naked shorts getting blown out, about ~$800 million on Binance alone.
9. This is why the price of bitcoin cannot be suppressed using derivatives like other commodities or p. metals like gold.
There will always be a spot bid, & derivatives can only be used to suppress price for so long. It's like attempting to keep a beach ball held under water.
There will always be a spot bid, & derivatives can only be used to suppress price for so long. It's like attempting to keep a beach ball held under water.
10. As many were yelling from the roof that on-chain metrics were all in full blown accumulation mode, others became skeptical as price didn't seem to budge, or even dumped, despite the increasingly bullish trends.
The metrics weren't wrong, but rather just early ๐
The metrics weren't wrong, but rather just early ๐
11. TLDR: The $BTC price cannot be suppressed for long, and anyone who attempts to do so, will find themselves REKT. #Bitcoin continue to do what it does best:
Produce blocks every 10 minutes, while remaining the only true free market for money the world has today.
Produce blocks every 10 minutes, while remaining the only true free market for money the world has today.
12. If you enjoyed this insight, I work for @BitcoinMagazine to produce a daily newsletter on global macro, bitcoin on-chain, and derivative markets.
Check it out below, cheers ๐ปmembers.bitcoinmagazine.com
Check it out below, cheers ๐ปmembers.bitcoinmagazine.com
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