Bitcoin
Why is crypto bearish today? – Forbes Advisor
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Cryptocurrencies suffered huge losses on Thursday, with Bitcoin plummeting more than 9% on the day. Many crypto traders are already calling the sudden drop a flash crash. The exact reasons behind this abrupt downward movement are somewhat unclear and several theories are currently circulating about what motivated the declines.
The losses began during Thursday morning as traders began liquidating crypto derivatives contracts in anticipation of the upcoming monthly options expiration period later in the week. The prices of Bitcoin and other cryptocurrencies had been gradually decreasing in recent weeks, which had put pressure on the futures and options markets.
Later in the afternoon, the Wall Street Journal published “preliminary” information about SpaceX’s first quarter results. SpaceX, a space rocket launch company founded by Tesla’s Elon Musk, is a dominant player in the space launch industry.
Among other details, the report stated that SpaceX had written down its Bitcoin holdings in the quarter and subsequently sold them.
Crypto Crash May Have Started With Derivatives
Crypto fell into the red on Thursday morning as derivatives traders began liquidating hundreds of millions of dollars worth of options and futures contracts.
Sale off derivative contracts like futures and options, they generally track prolonged declines in asset prices. This has been particularly true for crypto this week after the prices of Bitcoin and other digital currencies fell steadily in August.
Until today, cryptocurrency prices were in a very controlled decline. Each day there were slight price reductions, with no immediate dramatic changes occurring in a single session. But consistent declines have eroded spot prices, resulting in BTC’s decline of more than 7% in August to date.
As prices continue to fall, a large volume of August products Bitcoin Options Contracts are expiring out of the money this week – a term that indicates that an options contract has expired without generating a profit.
The expiry of out-of-the-money options triggered the sell-off in Bitcoin futures. This has generated a feedback loop in which cryptocurrency prices fall, options expire unprofitably, and futures are liquidated, thus intensifying downward pressure on prices.
Why did crypto struggle in August?
Less crypto news this summer played a major role in the price drop.
Following the June announcement that the investment giant BlackRock Filed for Spot Bitcoin ETFDesigned to reflect the real price of Bitcoin rather than relying solely on futures contracts, it initially looked like crypto was poised for a prosperous summer.
This did not happened. News flow drives crypto trading, and less news means reduced trading volumes and lower prices. In thinly traded markets, liquidity decreased.
Let’s go back to out-of-the-money options. The monthly options are scheduled to expire at the end of this week – a phenomenon known as “option expiration.” Given their lack of profitability, traders chose to sell futures contracts to offset their losses.
Although options and futures are often confused, they are different instruments. Options offer traders the flexibility to buy or sell an asset at a specific price and time frame, while futures contracts oblige the holder to buy the asset at a predetermined price on a specific date.
Both categories of positions can be closed before the expiration date, and that is exactly what happened with Bitcoin futures over the last 24 hours.
Coinbase will list Bitcoin futures
In other news, Coinbase crypto exchange was authorized to launch Bitcoin futures trading on its platform.
This represents a significant milestone, positioning Coinbase as the first U.S. cryptocurrency exchange with the ability to provide fully regulated cryptocurrency futures to investors, complementing the platform’s existing spot trading activities.
COIN shares rose about 4% on the news.
This development brings an air of excitement among cryptocurrency enthusiasts.
O Commodity Futures Trading Commission authorized Cboe Global Markets to offer Bitcoin futures contracts in June 2022. Prior to that, only collateralized contracts for Bitcoin and Ether were accessible through Cboe Digital.
This limitation meant that investors were unable to use leverage – borrowed funds – to trade Bitcoin or Ether futures on an accredited exchange. However, the Cboe-friendly ruling last June transformed the markets – making today’s price action possible.