Behind the Bitcoin Flash Sale Figures – The Armchair Trader

Jeff Gao, CEO of Cypherpunk Holdings, takes a look at the charts after last week’s sale.

Let’s start with the Bitcoin funding rate. The move from a neutral to negative financing rate on December 4 only seems like a flash in the pan, as our first chart shows. (Click on any of the graphics in this article to view a larger version.)

Graph 1. Perpetual funding rate compared to the index price

And surely, if we were to compare December 4th with the finance rates over a 6 month period, it was only a lightning bolt. A “much ado about nothing” event compared to the period June-July, as shown in graph 2.

History of BTC finance rates
Chart 2. History of BTC funding rates

BTFD volume comparisons

I’m not saying we can’t go further south, but the low on December 4th (see chart 3) had a volume of 10K BTC, less than a third of that on May 19th when the volume was 32. , 5K BTC.

BTC against US dollar
Chart 3.BTC against US dollar

Open interest

Observe the aggressive decline in open interest during and before the JUNE-JULY correction in Chart 4.

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Chart 4. Open term interest and perpetual open interest

The same can’t be said for NOV’s doldrums and the December 4th Flash Sale… at least not yet – the hodlers are still in the game! Participation equals resilience.

Implied volatility

Much like CBoE’s VIX, Deribit’s DVOL is its homebrew gauge of the 30-day forecast annualized implied volatility, shown here in Chart 5.

Price Index and BTC DVOL
Chart 5. Index price and BTC DVOL

Unlike the volmageddon of May, November and December barely register. In fact, without looking at the price chart and using DVOL alone, trying to guess the direction of the prices would be about as good as a raffle.

From “tomorrow never dies” to “die another day” …

You must admire the pure and unwavering gall of crypto traders. Look at the following table.

Higher volume per instrument, open interest by expiration
Chart 6. Top volume per instrument, open interest per expiration

It’s Monday, December 6th as this sentence is written and the most popular instrument by volume, head and shoulders above the rest, are long strike calls for $ 120,000 expiring… wait… in 25 days!

Seems like everyone wants New Years Eve payday to close 2021. After losing their lunch in the cash market, the YOLO crowd (again) mixed with buying options. Crypto has certainly done wonders in accelerating financial literacy. Pretty much everyone in the community knows puts and calls now… understand, not so much… but know, a lot!

Never change, my crypto brothers! Never changes!

Smile

Four days apart (graph 7), it’s a fair fight between the long and the short; the put-to-call ratio for the December 10 expiration is 0.87. With BTC hovering around $ 49,000 USD, there is formidable resistance around $ 50,000 and $ 52,000.

Interest opened by strike price, expiration of December 10
Chart 7. Open interest by strike price, expiration of December 10

25 days later (graph 8), the IV smile is now exorbitant on the rise. This upward bias persists for longer expirations until the expiration of September 30, 2022, when the put-to-call ratio fell to 0.30. For now, Put buying appears to be a November and December phenomenon.

Open interest by strike price, expiration on December 31
Chart 8. Open interest by strike price, expiration on December 31

Deribit Insurance Fund

Deribit currently holds just over 600 BTC in its insurance fund (Chart 9) to cover losses suffered by bankrupt accounts in cases where accounts are not closed quickly enough to avoid a draw on those reserves. If these reserves run out, then the losses will be socialized among the winning traders.

Deribit insurance fund size
Chart 9. Size of the Deribit insurance fund

And There you go! Deribit saw (Chart 10) a drawdown of around 12.7 BTC during these December 4th liquidations.
354 total bankruptcies if you add up over a 48 hour window.

Deribit Daily Faillities and Insurance Balance
Chart 10. Deribit Daily Faillities and Insurance Balance

December can bring additional bouts of volatility. See Chart 11. If we look at stocks, the first month of the VIX was certainly a stubborn one.

S&P 500 VIX Futures
Chart 11. S&P 500 VIX Futures

But crypto is not a stock and although we see positive correlations during persistent corrections, one would expect DeFi to chart its own course such that in an ideal world crypto is not correlated with CeFi. We have yet to switch to this type of scheme … but the crypto community is nonetheless optimistic that the day is coming.

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