A few previous corrections that occurred in January, February and April of 2021 brought quotes down 24.2% from the highs of the period, while the largest correction of the year, which occurred between May and July, reduced quotes by as much as 54% from the highs of March.
The most recent correction, which took place in September, was also the second deepest after May, bringing the quotations down 37.2% from the highs of the year. The current btc correction stands at no more than about -9%. Compared to the other corrections of this year, therefore, it is still very moderate and to tell the truth should not even be called a correction, at least for now.
In any case, it is always interesting to observe market dynamics during these rapid price movements. Many times I have said that when simultaneous sell-offs occur in all markets, from equities to precious metals and crypto, the first thing to see is what happens in derivatives (futures and options).
We can observe that, in front of a completely stagnant crypto market, in futures and options the opening of new positions has instead been increasing until reaching maximum values. When this happens, it is easy for "squeezes" to occur (simultaneous and often robotic closures of a mass of positions).
In particular, as can be seen in the chart below, when open futures positions exceed the threshold value of 350,000 btc it is easy for squeezes to occur in conjunction with events or news that are completely transitory.
It should be noted in the chart that squeezes can be both long and short (i.e. mass closures of both upward and downward positions can occur).
This shows that the strong movements of quotations caused by the derivatives market do not indicate a real trend present in the spot market (i.e. in the real crypto), but can go up or down based on completely transitory circumstances.
Unlike in the gold market, where banks accumulate huge downward positions in derivatives, causing an induced bear market of indefinite length (I already have a post in the pipeline that I hope to publish tomorrow), in crypto derivatives the number of upward and downward positions are almost equal and therefore do not contribute to defining any particular trend in the spot market, but merely "react" upward or downward in a non-specific way to events that are entirely transitory and not very influential.
This time, for example, the issue of the omicron variant of the covid popped up, and so the squeeze was bearish. But this does not indicate that there is a real bearish trend in the bitcoin market.
On the other hand, as far as the spot market is concerned (i.e. the real crypto market), I link to the previous week's data, where we had seen the exhaustion of a timid initial distribution phase.
I repeat once again that by "distribution" we mean an increase in the activity of traders (different from that of holders) and its ability to establish or not a progressive increase in quotations.
In this chart we notice that the closure of losing positions by traders (pink curve) has increased, already reaching the level of last May, although the correction this time has been much smaller than then. This is due to the fact that in May we started from much higher prices and therefore more time was needed to reach a level of exhaustion of the distribution phase similar to today's (the distribution is progressively exhausted as traders close their positions at a loss).
By contrast, the green curve, which indicates the closings in profit, has also lowered a lot, indicating that traders who could close in profit have decided to keep their coins on deposit, starting a phase of accumulation similar to that typical of "holders".
From the point of view of this "accumulation" phase of the traders, we have arrived at a threshold level (continuous straight line in the chart) that this year and in the two previous years has always indicated if the trend would have held to reach new highs, or if it would have capitulated bringing the prices even lower. In other words, at this level, traders could continue to keep the coins in storage (in which case they would support the trend allowing it to catch its breath afterwards and go up again), or they could give in to the temptation of disposing of their coins for a limited but safe gain (in which case the trend would go even further down).
At this point though, you have to look at the big picture. Today this sell-off took place during a still embryonic distribution phase. The sell-off of May instead took place during a mature and very advanced distribution phase (also the other sell-offs of 2021 that I mentioned at the beginning were concomitant with distribution phases more advanced than today's). What does this mean? It is clear that in an advanced distribution phase (i.e. in a phase in which traders in activity are many more than now) there is more room to "fall". On the contrary, when we are in an embryonic distribution phase, with few active traders, an eventual correction at the breaking of the support (the straight line of the chart) will lead to a very limited descent. For the simple fact that there are not enough traders who can push the market too low.
So here we go back to the same conclusions as last week: the current cycle of bitcoin is still poised between being in a final bear market phase or an initial bull market phase (we can say that we are back to the September situation). Any price fluctuation, even a strong one, upwards or downwards does not change this stagnant situation, for the simple reason that there are not enough players on the market that can establish a stronger trend.
Today, to the accumulation phase of the holders has been added also that of the traders. Future short term movements of this trend will depend on whether or not traders accumulation will hold. However, if the accumulation of holders continues to hold, any further decline due to a dissolution of the traders' accumulation will not lead to very deep downward phases, given the scarcity of the total number of these active traders. The apparent trends that we see concern much more the derivatives market (see yesterday's post), which however is not able to show us anything real... I would also like to add that a very similar situation is also being experienced by the U.S. stock market, as we have seen in a previous post.
I remain of the opinion that the current phase of turbulence and indecision will last little longer, what is possible and that should not scare is that in this week there could be very strong bearish spikes even below $ 53,000, the strongest support of BTC, which with good probability would be reabsorbed. These are my personal opinions and are in no way an invitation to invest or disinvest, do your own research.
Thanks for reading.