Bitcoin is in free fall – traders are bracing for even greater losses.
Bitcoin, the world’s largest cryptocurrency, fell below $91,500 on Monday, with the decline intensifying and erasing all gains made so far this year. Traders in the options market are betting on further drops, believing that the sell-off is far from over as deep-pocketed buyers pull back.
The shift in market sentiment has been rapid and dramatic. Demand for downside protection – particularly at the $90,000, $85,000 and $80,000 levels – has soared. According to Deribit, a unit of Coinbase, protective options expiring later this month have seen particularly heavy trading.
Just a few weeks ago, the price of Bitcoin soared to a high point. But now, traders have purchased contracts worth over 740 million US dollars, betting that the price of Bitcoin will continue to fall by the end of November – far exceeding the interest in bullish positions.
The lack of belief-based spot demand is becoming increasingly evident, as buyers who accumulated positions over the past six months now find themselves suffering significant losses, said Chris Newhouse, research director at Ergonia, a company specializing in decentralized finance.
This crisis is mainly concentrated on enterprises known as digital asset reserve companies – these companies hoarded a large amount of cryptocurrencies earlier this year, attempting to become cryptocurrency hoarders in the stock market. Although Michael Saylor’s MicroStrategy Inc. just purchased another $835 million worth of Bitcoin, some of his peer companies are facing increasing pressure and have to sell their assets to protect their balance sheets.
This kind of selling created a psychological pressure: the market was crowded with investors who had lost too much to keep buying but were reluctant to cut their losses.
The sentiment index compiled by the data analytics platform CoinMarketCap (tracking price momentum, volatility, derivatives, etc.) indicates that cryptocurrency participants are in a state of “extreme fear”.
Larger economic factors are also influencing market sentiment. Traders are closely watching Nvidia’s earnings report on Wednesday, which is seen as a barometer for tech stocks and speculative risks, as well as changes in market expectations for a possible rate cut by the Federal Reserve in December. The S&P 500 index dropped by more than 1%, dampening sentiment across various risk assets.
Adam McCarthy, a research analyst at Kaiko, said: “I think the discussions around the Federal Reserve and the AI bubble are the two major headwinds facing cryptocurrencies and risky assets before the end of the year. The risks of AI could intensify and affect the risk sentiment in the cryptocurrency market. Coupled with the remarks of Federal Reserve officials, Bitcoin is likely to continue to decline.”
The token of Ethereum, Ether, is particularly vulnerable. The price of this second-largest global cryptocurrency has plunged to $2,975, with a cumulative decline of 24% since the beginning of October.
“Ethereum is highly vulnerable to this trend because the largest digital asset financial companies are currently operating at a loss,” said Greg Magadini, derivatives director at Amberdata.
Since a large-scale liquidation wave in early October wiped out about $19 billion in digital assets, the entire market has been in turmoil. The open interest of cryptocurrency futures contracts has declined, especially for smaller tokens like Solana. According to Coinglass, its open interest has dropped by more than half.
This risk-averse sentiment has spread to the cryptocurrency market, where market sentiment remains fragile. The recent decline reflects broader macroeconomic turmoil rather than structural flaws, said Thomas Perfumo, global economist at cryptocurrency exchange Kraken.
