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When the price of Bitcoin falls in the market, retail investors are no longer the only ones that suffer. Institutional traders are also quite familiar with the digital asset, and their market sentiment is important throughout each cyclical trend change. Bitcoin is currently trading between $35,000 and $40,000, although its fall from ATH levels has been exacerbated by market derivatives. Now, three weeks later, it’s interesting considering how market dynamics may have changed with these certified traders.
CME Bitcoin Futures are dropping, with low open interest.
CME Bitcoin Futures have seen a decline in Open Interest since the beginning of April. BTC’s strong surge had already made some traders anxious, but retail euphoria kept the price pumping until the impetus waned. In the month of May, OI fell by more than 25%, while daily volumes fell as well. Furthermore, according to Skew, Open Interest was at its lowest level in three months at the time of publication.
The overall picture, though, is not as chaotic as predicted.
Smart Money is unfazed; Options market is cautious
The enormous capitulation event that occurred during the third week of May caused investors to fear. This feeling was consistent with the reality that institutions’ interest had begun to wane since the end of February. While some expected these institutional traders to modify their market positions following the decline, the latest CME COT data says otherwise.
According to the study, smart money was largely unconcerned with the occurrence. Long and short positions were not out of place, and though asset managers suggested a greater directional bias, several traders are presently liquidating their short holdings (or buying the current dip).
The impact on the retail side was expected with traders exiting their long positions, and they are now trying to find a bottom in the market.
In terms of options trading, the 21 May contract expiry left a bitter flavour. At the time of publication, the market was contracting in terms of a record 2-to-1 puts-to-calls ratio. While the atmosphere was not overtly pessimistic, Option traders did notice a feeling of caution.
Can a decline in volatility limit movement?
One significant concern with low volumes and lesser derivatives activity is that market volatility would fall. Volatility is a two-way street for Bitcoin, and while it was dominating during the crisis, it is also expected to power a comeback over its immediate barrier of $40,000-$50,000.
It will be critical to observe traders’ behavior over the next few weeks as activity is needed to push the price in a bullish direction once again.