Over $1.1 billion in bullish positions were destroyed during the crypto market crash, but their disappearance did not trigger a real rebound. The main problem is no longer just excess leverage: spot purchases and institutional flows remain too weak to regain control of the market.

In brief

  • Over $1.1 billion in bullish positions were liquidated in the crypto market.
  • Despite this wave of forced sales, bitcoin struggles to rebound sustainably.
  • US Bitcoin ETFs record significant outflows, revealing fragile institutional demand.
  • The rebound above $80,000 relied on insufficient buying to support the rise.
  • US job strength reinforces fears of another Fed rate hike.

Leverage disappears without a buyer taking over

Bitcoin traded around $76,100 on the morning of November 6, down more than 5% over twenty-four hours. Indeed, altcoins faced even greater pressure.

The drop was amplified by leveraged contracts. Of the $1.27 billion in automatically closed crypto positions, over $1.1 billion came from bullish bets that became undercollateralized. Carlos Guzman, Vice President of Research at GSR, describes the movement as “a pullback in risk appetite amplified by leverage”.

Several indicators, however, show that the elimination of speculative positions has not yet created a solid low point :

  • Open interest on bitcoin futures fell from $28 billion to under $26 billion ;
  • US Bitcoin ETFs recorded $430.2 million in net outflows ;
  • Weekly ETF flows reached $869.8 million in outflows ;
  • Bitcoin traded at a discount on Coinbase versus Binance ;
  • Buyers only allowed for a limited rebound from a low near $75,200.

The decline in open interest indicates that a significant portion of leverage has been removed. This cleanup reduces the risk of an immediate new cascade, but it is not enough to push the price up. For that, new capital must actually purchase bitcoins, without relying on borrowing or derivative positions.

However, this relay remains absent. Bitfinex analysts warned that “maintaining this rebound requires genuine spot demand”. Data from November 5 confirmed this weakness: institutional funds withdrew capital at the very moment traders on margin were expelled from the market.

The electoral rebound was based on too fragile a demand

Bitcoin had exceeded $80,000 after the US midterm elections. This movement seemed to mark the return of buyers but partly stemmed from forced closure of short positions and brief relief in traditional markets.

Futures did not record a significant rise in open interest during the rebound. Meanwhile, the discount observed on Coinbase indicated weaker US demand than on international platforms. Both factors already weakened the recovery before the Nasdaq drop.

When tech stocks fell, no spot-buying base could absorb the sales. The Nasdaq lost 5.5%, while the AI-related companies’ decline prompted some managers to reduce their other risky positions. Bitcoin then lost all its post-election gains within hours.

This sequence distinguishes two types of recovery. A rebound fueled by short position buybacks can be quick but exhausts once sellers close positions. A recovery supported by spot purchases often progresses slower but creates demand able to defend key supports.

US employment report further delays a sustainable bitcoin recovery

The US employment report published on November 6 brought no relief. The US created 165,000 jobs in October, against about 65,000 expected. September’s figure was also revised up from 29,000 to 60,000, while unemployment fell from 4.2% to 4.1%.

This strength increases the possibility of another Fed rate hike in December. After publication, the probability of a 25 basis point increase rose back to around 78%, from about 67% the day before. The yield on 10-year US bonds rose toward 4.89%.

Bitcoin barely reacted immediately and traded around $75,500 to $75,800. This stability is not yet a bullish signal. It mainly shows that the most urgent forced sales have already occurred.

Jasper De Maere, trader at Wintermute, identifies $73,000 then $68,000 as possible zones in case of further decline. To restore a favorable momentum, BTC should regain and hold $80,000. Before that, the decisive indicator will be less the volume of derivative bets than the return of spot buying and inflows into ETFs.

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Diplômé de Sciences Po Toulouse et titulaire d'une certification consultant blockchain délivrée par Alyra, j'ai rejoint l'aventure Cointribune en 2019. Convaincu du potentiel de la blockchain pour transformer de nombreux secteurs de l'économie, j'ai pris l'engagement de sensibiliser et d'informer le grand public sur cet écosystème en constante évolution. Mon objectif est de permettre à chacun de mieux comprendre la blockchain et de saisir les opportunités qu'elle offre. Je m'efforce chaque jour de fournir une analyse objective de l'actualité, de décrypter les tendances du marché, de relayer les dernières innovations technologiques et de mettre en perspective les enjeux économiques et sociétaux de cette révolution en marche.

The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.