Bitcoin Drops Nearly 7% as Traders Prepare for Market Correction

Following a historic leap beyond $100,000, Bitcoin saw a decline of nearly 7%, as traders began adjusting their positions in anticipation of a price correction.

The cryptocurrency fell to a low of $92,144 on Friday but found stability at $97,851 by 6:05 a.m. in London. This volatility extended to the wider cryptocurrency market, coinciding with a pause in a rally that was fueled by President-elect Donald Trump’s endorsement of the sector.

There has been a noticeable increase in demand for bearish strategies, such as put options that grant the holder the right to sell at a predetermined price within a specified period. Significant activity has been noted in puts with strike prices of $95,000 and $100,000, as highlighted by Amberdata. Additionally, interest has surged in puts around the $75,000 and $70,000 levels.

“While there seems to be ongoing potential for growth, it is understandable for investors to take some profits,” noted Josh Gilbert, a market analyst at eToro. “Historically, during bull markets, Bitcoin prices have experienced corrections ranging from 20% to 40%.”

Bitcoin, as the leading digital currency, surged above the $100,000 threshold on Thursday, driven by optimism regarding Trump’s selection of a cryptocurrency advocate to head the US Securities and Exchange Commission, which is seen as a step towards mainstream acceptance.

Trump has committed to rolling back the Biden administration’s limitations on digital assets and aims to position the US as the global hub for cryptocurrency. He has even backed the controversial idea of establishing a strategic national Bitcoin reserve, a proposal that former US Treasury Secretary Lawrence Summers has labeled as “crazy.”

White House czar

Late Thursday evening in the US, Trump declared on Truth Social that David Sacks would take on the role of White House czar for artificial intelligence and the cryptocurrency sector. “He will craft a legal framework to provide the clarity that the crypto industry seeks and enable it to thrive in the US,” Trump stated.

The president-elect’s positive stance on cryptocurrencies has bolstered market sentiment, buoyed by $33 billion in net inflows into US Bitcoin exchange-traded funds so far this year. However, following a 45% increase in the token’s value since Election Day on November 5, speculation arises regarding whether this rally might require a breather.

“The recent volatility spike seems to indicate a classic blow-off top,” commented Tony Sycamore, a market analyst at IG Australia Pty. “While we do not consider this the conclusion of the Bitcoin bull market, it suggests that we will be entering a consolidation phase in the coming days or weeks.”

Six-figure strikes

Other areas within the derivatives market point to ongoing optimism extending into 2025. On the Deribit exchange, the highest open interest for options that are set to expire at the end of January revolves around calls with strike prices of $110,000 and $120,000.

Options trading volume on BlackRock’s iShares Bitcoin Trust, which is the top fund for Bitcoin, saw a significant uptick on Thursday, with over 400,000 calls being traded against nearly 190,000 puts, according to data from Bloomberg.

Among noteworthy strategies, there were nearly 34,000 contracts traded for puts at $51 and $41 set to expire on January 17. Subsequently, $58 calls and puts exchanged on May 16 occurred in two opening blocks consisting of 12,000 options each.

© 2024 Bloomberg

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