Fearful Market Shakes Out Little Leverage

SEP 20, 2021 • 4 Min Read

Disclosure: Delphi Ventures and members of our team have invested in BTC. This statement is intended to disclose any conflict of interest and should not be misconstrued as a recommendation to purchase any token. This content is for informational purposes only and you should not make decisions based solely on it. This is not investment advice.

Key Takeaways

  • Ever since the correction a few weeks ago, funding rates for BTC perpetuals have been slightly depressed. We noted last week that sentiment was fragile, and this is yet another sign of that. Price rebounded a bit from the lows, but funding is still negative.

  • The lack of deep, cascading liquidations implies this was either not a wipeout or the pain isn’t yet over. It’s possible that traders were just looking to de-risk some of their exposure going into tomorrow’s FOMC meeting. Global equities took a beating on today’s open, which could suggest that uncertainty over the Fed’s stance is the main reason for a risk-off environment across markets, amongst other things.

  • Ever since BTC dipped a few weeks ago, volatility expectations for it have also slowly grinded lower. However, a less aggressive move down over the last few days has caused a spike in volatility expectations. The market seems more fearful now than it was during the flash crash (which was worse). This highlights the weight of tomorrow’s FOMC meeting on global markets. Hopefully, we shed some of the uncertainty as we progress later into the week, getting better clarity on true sentiment.

  • As is usually the case with sudden collapses in market structure, liquidity on the leading futures exchanges saw a meaningful deterioration over the last few days. While this seems to be a common occurrence in these situations, it’s worth noting that the liquidity deterioration today was not as severe as previous corrections — including the one earlier this month.

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