During the first week of January, it seemed like the crypto market was never going to go down. Between the positive sentiment and explosive growth of coins such as XRP and ZCL, which had risen thousands of percent’s in just a matter of weeks, many investors loaded their bags for the next bull run. However, it is difficult to determine where the top will be for coins up thousands of percent in a short time. Bitcoins short lived spike to $19k suggested a sub $10k correction was on its way. Now that we have touched sub $10k levels, is current market consolidation complete and preparing for a new all-time high, or is round 2 of smack down on its way?
Unfortunately for us long investors, I don’t believe this market correction is over. On January 17th, the first round of Bitcoin Futures expired at $10,900. This was a huge win for the nearly 2,000 short positions placed through CBOE. The CME Group, the world’s largest futures exchange, next round of Bitcoin futures will expire on January 26th.
There is a key difference between CBOE and CME contracts we must take into account. While fewer CME contracts trade, each contract represents five BTC (1:5). At CBOE, one contract represents one BTC. CME and CBOE both require initial margins, and maintenance margins in the low 40% range. Essentially, there’s A LOT more money flowing through CME than CBOE; therefore, a lot more leverage to push the price down.
What I suspect is happening and will happen:
Whales who were able to accumulate massive amounts of Bitcoin in the sub $6k range bought short position contracts when CBOE launched them in mid-December when the price per BTC was around $17k. It is likely these large BTC holders have been able to sell off a portion of holdings to drive the price of bitcoin down during the time leading up to their contract expiration. They profited by selling at the “top,” then drove it down to collect again on the contract. Leading up to the 26th, Bitcoin is likely to be pushed to the lowest USD levels since November, catching support levels in the low $8k range.
What’s going to happen after the 26th when the next contract expires? While those who are shorting bitcoin could continue to short Bitcoin, it wouldn’t be profitable forever. Once they have suppressed Bitcoin to their fullest extent, many of these short whales will begin taking long positions to prepare for the impending new all-time high. Post new all-time high, they will repeat the cycle by shorting. After the 26th, contracts won’t close for another four weeks. I predict Bitcoin is going to see some green – possibly a new all-time high.
This post in not investment advice. Do your own due diligence and invest accordingly.