Bitcoin (BTC) has experienced a significant downturn, falling 11% since Monday and reaching a six-month low of $94,590 on Friday. This decline has been accompanied by continued weakness in Bitcoin derivatives, mirroring broader trends in the tech sector that have reduced overall risk appetite and demand for leveraged positions. Traders are now assessing whether the market has bottomed out and what conditions are necessary for confidence to return.
The recent pullback resulted in the liquidation of $900 million in BTC leveraged long positions, which represents less than 2% of the total open interest. This price movement had a relatively minor impact on the broader market when compared to the cascading liquidations on October 10, which were exacerbated by thin liquidity and led to a 22% drop in BTC futures open interest.
Economic Headwinds and Inflation Concerns
Renewed concerns about upward inflation pressure have emerged following US President Donald Trump's announcement of intentions to cut tariffs to mitigate high food costs. Mohamed El-Erian, chief economic adviser at Allianz, indicated to Yahoo Finance that recession risks have increased due to the "affordability crunch" impacting households at the lower end of the income distribution. El-Erian cautioned that these pressures could spread throughout the broader economy.
The BTC futures premium remained close to 4% on Friday, consistent with the previous week. While this is below the neutral 5% line, it has moved up from the lows of 3% seen earlier in the month. The demand for bullish leverage continues to be subdued, though this does not necessarily indicate strong conviction from bears. Examining the long-to-short ratios of professional traders can offer insight into expectations for further downside.
Since Wednesday, whales and market makers at Binance have increased their long positions, taking advantage of the dip as Bitcoin fell below $100,000. Conversely, whales at OKX reduced their bullish exposure at a loss after the $98,000 support level failed on Friday. Despite these mixed signals, professional traders appear more optimistic now compared to Tuesday.
AI Sector Concerns and Market Derisking
A significant factor contributing to the recent risk market correction has been concerns within the artificial intelligence sector, which had previously been a strong driver for stock performance. Noted investor Michael Burry has raised questions about whether extended depreciation schedules for computing equipment might be artificially inflating earnings momentum. Amazon stands out as the only major tech company that has recently shortened its depreciation calendar.
The cumulative net outflows of $1.15 billion from US Bitcoin spot exchange-traded funds (ETFs) over two days have negatively impacted sentiment, although this amount constitutes less than 1% of their total assets under management. Additionally, selling pressure from a single holder who acquired Bitcoin in 2011 has contributed to increased fear and uncertainty. Analysts have pointed out that this specific selling event is isolated and does not represent a broader market trend.
On Friday, the BTC options delta skew was recorded at 10%, showing little change from the previous week. While this figure is above the neutral mark of 6%, the options market's gauge of fear remains significantly below the peak of 16% observed last month. Given that Bitcoin has fallen 24% from its all-time high, the options market's resilience can be seen as a positive indicator.
Several companies valued at $20 billion or more have experienced losses of 15% or greater since November 5. These include CoreWeave (CRWV), Ubiquiti (UI), Nebius Group (NBIS), Symbiotic (SYM), and Super Micro Computer (SMCI). The current market conditions suggest that traders are likely to continue reducing risk and favoring cash holdings until there is greater clarity on the economic outlook. Consequently, Bitcoin's price may remain under pressure.