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On January 11, Bitcoin plummeted by more than 20%, and its price dropped to $8,000 in a single day, its worst weekly performance in four months. Regarding the plunge, the founder of Synthetix, a synthetic asset agreement, interpreted it as “the sharp retracement of the market was caused by excessive long leverage.”
So, what is the current level of leverage of Bitcoin derivatives in the market? William, the chief researcher of OKEx Research, revealed that the current daily rise and fall of the bitcoin market is often more than 10%, which means that users who conduct derivatives transactions during this period, whether they are long or short, have a leverage of more than 8 times. Will be liquidated. In other words, the average leverage of derivatives contracts that have not yet been closed in the market is below 8 times.
“This is exactly the opposite of many people’s potential perceptions: the current level of market leverage is not increased, but decreased, because the market is too volatile, and highly leveraged derivatives will be forced to liquidate.”
At present, data from Bybt.com shows that the average spot trading volume of Bitcoin on the exchange in the past 30 days has reached 12 billion U.S. dollars, and the amount of Bitcoin options contracts that will expire on the 29th of this month amounted to 3.8 billion U.S. dollars. That is, the size of the Bitcoin option contract is equivalent to 35% of the average daily trading volume of the spot.
With the expiration of such a large-scale option contract, will the market fluctuate sharply? “The expiration and delivery of option contracts have basically no impact on the spot market.” William said.
“First of all, Bitcoin options currently use cash delivery instead of physical delivery, and the final settlement amount is calculated after netting, and there is no demand for BTC spot in physical delivery.”
“Secondly, in order to ensure that option seller users have sufficient funds to perform the contract, the seller has a margin requirement for holding positions. When the margin balance of the option seller’s account is lower than the maintenance margin, the account will start to force a reduction. For the option contracts that are closed, the seller has enough margin to ensure the performance of the contract. You don’t need to worry about the impact on the market due to failure to perform the contract.”
Regarding the current market trends and investment recommendations, William pointed out, “The fundamental reason for this round of Bitcoin bull market is that under the economic environment of high inflation and low growth, a large number of overseas institutional investors have entered the market in large numbers, which has brought Bitcoin Currency bull market”.
In William’s view, at present, with the launch of vaccines in various countries, including the fiscal stimulus measures brought by the new US government, they will promote economic recovery. Under the dual pressure of economic recovery expectations and high inflation expectations, the market speculates that the world’s major central banks will gradually withdraw from the existing easing policies, and the current market has begun to diverge on future inflation expectations.
“For institutional investors, what they care about is the preservation and appreciation of assets, not the feelings of’Bitcoin belief’ or’blockchain revolution’. In the medium and long term, in the second half of this year, when the vaccine is launched, the epidemic has gradually eased Later, with the gradual recovery of the economy, monetary policy will gradually change from loose to moderately tight. At that time, institutional investors are likely to sell Bitcoin and the Bitcoin market will fall into depression.”
“In the short term, the current Bitcoin market has accumulated a sufficiently large bubble and the risk is high. Investors are not recommended to invest in Bitcoin with excessive leverage at this moment.” William said.