Market Wrap: Traders ‘Whack the Beehive’ as Bitcoin Surges, Then Plunges

Bitcoin’s jump up and right back down is at least partially due to the crypto derivatives markets.

AccessTimeIconJun 2, 2020 at 8:21 p.m. UTC
Updated Sep 14, 2021 at 8:47 a.m. UTC
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Tuesday’s bitcoin price whipsaw can be partially explained by large traders looking to deleverage in the derivatives market. 

Bitcoin (BTC) was changing hands around $9,512 as of 20:00 UTC (4 p.m. ET), slipping less than 1% over the previous 24 hours. 

A sudden rally to $10,000 late Monday boosted bullish sentiment as short sellers were squeezed on derivatives exchange BitMEX, the largest such event in eight months. Bitcoin traded as high as $10,430 on Coinbase. However, the market lost steam and bitcoin was then confined to a tight $10,000-$10,100 range for around 12 hours. Then, at 14:00 UTC (10:00 a.m. ET) Tuesday, it suffered a drop of 8%, or $800, in less than five minutes

“Today’s action is very fickle,” said Katie Stockton of Fairfield Strategies. Stockton still sees bullish momentum and expects bitcoin to approach highs not seen since last year. “Specifically, $10,055 is a retracement level that is the last major hurdle to the high from 2019 near $13,850,” she added. 

 Bitcoin trading on Coinbase since May 31
Bitcoin trading on Coinbase since May 31

Bitcoin’s sudden rise then fall was in part driven by liquidations on Seychelles-based derivatives exchange BitMEX. Over the past 24 hours, buy liquidations on BitMEX jumped during bitcoin’s price rise, then sell liquidations surged as the world’s oldest cryptocurrency dipped. Total buy liquidations over the past 24 hours were $131 million while sell liquidations were at $111 million. 

Liquidations on BitMEX are the equivalent of margin calls on conventional exchanges. A “buy liquidation” on a bitcoin contract is when a losing short position is forced to close, requiring purchases of bitcoin. When a “sell liquidation” occurs, those long bitcoin are forced to sell. 

BitMEX liquidations the past 24 hours
BitMEX liquidations the past 24 hours

One analyst has a term for the recent large movements.  “It looks like a classic 'whack the beehive' trade,” said George Clayton, managing partner of alternative asset fund Cryptanalysis Capital. 

Clayton suspects large spot traders are looking to liquidate BitMEX perpetual swaps that enable highly leveraged bets, up to 100x, on bitcoin’s price going up or down. “Big traders are looking for stops or perpetual liquidations,” he told CoinDesk. 

In all, $242 million in liquidations occurred over the last 24 hours, over 70% of the $339 million in total BitMEX liquidations for the past week. 

BitMEX liquidations the past week
BitMEX liquidations the past week

Vishal Shah, an options trader and founder of Polychain Capital-backed derivatives exchange Alpha5, is concerned about massive amounts of leverage looming in crypto. However, he told CoinDesk, the recent bitcoin price moves still have futures in "contango’" a market condition considered bullish as futures are traded higher than spot prices. “Even after the roundtrip, we retain a contango in the curve,” he said. 

Bitcoin futures on top derivatives exchanges are still priced above spot
Bitcoin futures on top derivatives exchanges are still priced above spot

Cryptanalysis Capital’s Clayton also concurs with Shah that the market remains optimistic on higher bitcoin prices, despite this speed bump.

“The macro environment is still incredibly bullish for bitcoin and the wider crypto market,” Clayton told CoinDesk. 

Other markets

Digital assets on CoinDesk’s big board are mixed on Tuesday. Ether (ETH), the second-largest cryptocurrency by market capitalization, slipped 1% in 24 hours as of 20:00 UTC (4:00 p.m. ET). 

Ether trading on Coinbase since May 31
Ether trading on Coinbase since May 31

Cryptocurrency winners on the day include stellar (XLM) climbing 6.9%, decred (DCR) up 6.2% and bitcoin cash (BCH) in the green 3%. Losers in daily trading Tuesday are qtum (QTUM) down 5%, neo (NEO) in the red 2.8% and litecoin (LTC) losing 2.8%. All price changes were as of 20:00 UTC (4:00 p.m. EDT).

In commodities, gold is trading flat, with the yellow metal losing less than a percent and closing at $1,726 at the end of New York trading. Oil was making gains, climbing 3.6% as a barrel of crude is priced at $36.26 as of press time. 

Contracts-for-difference on oil since May 29
Contracts-for-difference on oil since May 29

In the United States, the S&P 500 index climbed 1%, now up 40% from March's low. U.S. Treasury bonds all climbed Tuesday. Yields, which move in the opposite direction as price, were up most on the two-year bond, in the green 11%.

The FTSE Eurotop 100 index of the largest stocks by market capitalization in Europe closed up 1.5%. In Japan, the Nikkei 225 index climbed 1.2%, rising to its highest level since February 26 on expectations of economic recovery from the coronavirus pandemic.


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