More than $1.1 billion in bullish positions were destroyed during the crypto market’s collapse, 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 take control of the market.
In brief
- More than $1.1 billion in bullish positions have been liquidated in the crypto market.
- Despite this wave of forced sales, bitcoin is struggling to rebound sustainably.
- US Bitcoin ETFs are seeing large drawdowns, revealing fragile institutional demand.
- The rebound above $80,000 relied on insufficient buying to support the rise.
- The strength of American employment reinforces fears of a new rate hike by the Fed.
Leverage disappears without a buyer taking over
Bitcoin was trading around $76,100 on the morning of November 6, down more than 5% over twenty-four hours. Indeed, altcoins were under even greater pressure.
The fall was amplified by leveraged contracts. Of $1.27 billion in auto-closed crypto positions, more than $1.1 billion came from bullish bets that became insufficiently collateralized. Carlos Guzman, vice president of research at GSR, describe the movement like “a decline in appetite for risk 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 below $26 billion;
- US bitcoin ETFs saw $430.2 million in net withdrawals;
- Weekly ETF flows reached $869.8 million in outflows;
- Bitcoin was trading at a discount on Coinbase to Binance;
- Buyers only allowed 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 another immediate cascade, but it is not enough to cause the price to rise. To do this, new capital must actually purchase bitcoins, without relying on borrowing or a derivative position.
However, this relay remains absent. Bitfinex analysts had warned that “maintaining this rebound requires real cash demand”. The November 5 data confirmed this weakness: institutional funds withdrew capital at the same time as credit traders were forced out of the market.
The electoral rebound was based on too fragile demand
Bitcoin had exceeded $80,000 after the US mid-term elections. This move appeared to mark the return of buyers, but it came in part from the forced closing of short positions and a brief relief in traditional markets.
Futures contracts had not seen a significant rise in open interest during the rally. At the same time, the discount observed on Coinbase signaled weaker American demand than that present on international platforms. These two elements were already weakening the recovery before the fall of the Nasdaq.
When technology stocks fell, no basis for spot purchases was able to absorb the sales. The Nasdaq lost 5.5%, while the decline in artificial intelligence companies pushed some managers to reduce other risky positions. Bitcoin then lost all of its post-election gains in a few hours.
This sequence distinguishes two types of recovery. A rally fueled by buybacks of short positions can be rapid, but fizzles out once sellers close their positions. A recovery supported by spot purchases often progresses more slowly, but creates demand capable of defending key supports.
U.S. jobs report pushes long-term bitcoin recovery further away
The American jobs report published November 6 brought no relief. Thus, the United States created 165,000 jobs in October, compared to around 65,000 expected. The September figure was also raised from 29,000 to 60,000, while unemployment fell from 4.2% to 4.1%.
This strength reinforces the possibility of another rate hike from the Federal Reserve in December. After publication, the probability of a 25 point increase base rose to around 78%, compared to around 67% the day before. The yield on US ten-year bonds rose to 4.89%.
Bitcoin reacted little immediately and moved around 75,500 to 75,800 dollars. This stability does not yet constitute a bullish signal. Above all, it shows that the most urgent forced sales have already taken place.
Jasper De Maere, trader at Wintermute, identifies 73,000 then 68,000 dollars as possible areas in the event of a further decline. To reestablish favorable dynamics, BTC should recover and maintain $80,000. Before that, the decisive indicator will remain less the volume of derivatives bets than the return of spot purchases and entries into ETFs.
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