Analysts believe that Bitcoin ( USD) could finish 2021 with the same price action that brought it from below $30,000 to a new record close to $66,000 in a matter of months.
investors booked profits on Thursday after the launch of two Bitcoin futures-based ETFs (ETFs). dropped by around 5% last week following the launch. Many investors believe that the price will rise in 2021 because of the addition of new funds from issuers such as VanEck, Galaxy Digital, and Bitwise.
Leveraged investors also sold positions on future Bitcoin bets. Leverage refers to money borrowed from a market maker or exchange that allows traders to increase their gains and losses from purchasing a particular asset.
Analysts expect more volatility in the short-term as the year winds down, with more than $185million of BTC liquidations within the last 24 hours according to ByBit.
Nik Bhatia, the author of the macroeconomics newsletter Layered money, wrote on Tuesday, “I expect weekly moves over $20,000 each direction as we close out this year,”
This latest BTC price swing is small compared to the $4.87 Billion liquidated on April 15, which was the worst day of the year for BTC derivatives traders.
Both movements and the $1.2 Billion liquidation of levered positions in September have an obvious lesson. Highly leveraged Bitcoin positions can lead a cascade selling that can eventually sink the spot price.
Liquidations in options and futures markets are often caused by high costs for holding a levered positions. These margins can become too expensive for traders who take long positions. They may decide to liquidate the position rather than paying the margin.
“It might be unexpected events that really change the mood of market. Having too much money behind expectations can lead to a significant correction.
Chung’s firm is one of the largest that provides indices, which are aggregated price measurements on crypto assets for large institutions such as the CME or Goldman Sachs. Chung has not been concerned by the premiums that are available for trading BTC options. This means that a relatively small drop in price of 6% could indicate a healthy market, according to BTC standards.
Velte Lunde, an analyst at Arcane Research, said that the leverage from BTC options and futures contracts could play a greater role in Bitcoin’s price swings.
Lundt, like Bhatia, anticipates that volatility in crypto assets will continue into the year. Additionally, the asset’s prices will rise by the end of the year.
Due to high leverage and active traders, a week with $10K-20k weekly moves is possible. He told Yahoo Finance that it was fair to assume that many of these traders aren’t happy now that bitcoin has once again traded below $60k.
According to research by Lundt, and Bitwise , the CME futures are leading the price discovery for bitcoin in both the spot and futures markets. This should increase until the SEC approves Bitcoin spot ETF. It could attract more investor attention due to the extra costs associated with futures-based ETFs .
Although futures-based ETFs such as BITO or BTF do not hold Bitcoin directly, Sui Chung, CEO of CFBenchmarks, said that they can influence Bitcoin’s price.
Like the major U.S.-based oil futures-based ETF USO , $BITO already holds large amounts of Bitcoin futures contracts. Chung stated to Yahoo Finance that if all assets in USO were liquidated tomorrow morning, oil prices will fall.
A significant liquidation of an ETF is rare, but Direxion, a leveraged ETF provider has filed to create an ETF that shorts Bitcoin futures.
“Bull markets can be extremely emotional. They happen quickly and violently in bitcoin. You can’t even catch your breath.