- Traders turned bearish after liquidating $1.5 billion of bullish bets over the weekend, according to options data.
- However, traders are more optimistic about the second half of the year.
- Significantly lower leverage means the market is less likely to experience another liquidation cascade in the near term.
Bitcoin's eventful week began with a 14% plunge, while bullish traders wiped out more than $1.5 billion.
Vettle Runde, senior analyst at K33 Research, said prices have rebounded, but frightened traders are taking bearish option bets to prevent further declines.
Demand for short-term bear options contracts was at its highest level since January as uncertainty increased due to Iran's attacks on Israel and the Fed's more hawkish stance on interest rate policy.
However, traders are more bullish on the second half of the year. Skew, a measure of volatility differences, is negative for contracts expiring in October. This means that traders are paying more for bullish bets and calls than for bearish bets.
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This indicates an increased demand for contracts that pay when Bitcoin rises, K33 found.
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Amid rising tensions in the Middle East, market makers withdrew liquidity while traders scrambled to protect their positions, leading to a “significant wipeout,” Lunde said.
According to data from CoinGlass, liquidations amounted to more than $1.5 billion, with the majority occurring on the OKX and Binance exchanges.
In the short term, speculative activity declined. Two metrics fell: the funding rate for options, called perpetual options, and the so-called open interest rate, which measures the number of outstanding contracts.
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K33 said lower open interest and funding rates reduce the likelihood of further “liquidation cascades”.
In other words, the worst may be over.
