Bitcoin’s recent price rally has captured the attention of market participants, leading to speculation that the long-awaited bull market has finally begun. Between October 22 and October 24, Bitcoin’s price surged by 16.1%, resulting in the liquidation of $230 million worth of shorts using futures contracts. Notably, the open interest in Bitcoin futures also saw a significant increase during this period.
The data indicates that while Bitcoin shorts were caught off guard on October 22, they were not employing excessive leverage. In contrast, a similar price drop on August 17 resulted in $416 million in long liquidations, despite a smaller percentage-size move. The open interest in Bitcoin futures decreased during that time.
This data seems to support the theory of a gamma squeeze, which suggests that market makers had their stop losses triggered. NotChaseColeman, a prominent Bitcoin personality, explained on social media that arbitrage desks likely hedged their short positions after Bitcoin broke above $32,000, leading to the subsequent rally.
Another theory put forward by a user on social media suggests that Changpeng Zhao, the CEO of Binance, may have played a role in Bitcoin’s price action. The theory suggests that Zhao used BNB, Binance’s native token, as collateral for margin on Venus Protocol, a decentralized finance (DeFi) application. After being forced to sell Bitcoin to stabilize the price of BNB, Zhao would have paid back the interest on Venus Protocol and rebalanced his Bitcoin position using BNB.
However, these theories, including the Venus-BNB manipulation and the gamma squeeze, remain speculative, with no concrete evidence to confirm or dismiss them. The increase in Bitcoin futures open interest suggests that new leveraged positions have entered the market. This movement could have been driven by news of BlackRock’s spot Bitcoin ETF request being listed on the Depository Trust & Clearing Corporation (DTCC).
To gauge professional traders’ positioning after the surprise rally, it is essential to analyze Bitcoin derivatives metrics. The Bitcoin futures premium reached its highest level in over a year, breaking above the 5% neutral threshold. This indicates a shift from a bearish sentiment to a more bullish outlook.
Examining Bitcoin options markets further reveals that the delta 25% skew has shifted from neutral to bullish, indicating extreme optimism. However, the current level suggests a somewhat balanced demand between call and put options.
Despite ongoing speculation regarding the approval of a spot Bitcoin ETF, there is sufficient evidence to support a healthy influx of funds into the market. This justifies a rally beyond the $35,000 mark, while the futures premium remains at a modest 8%.
It is important to note that the information provided in this article is for general purposes only and should not be taken as legal or investment advice. The views expressed are solely those of the author and do not necessarily reflect the opinions of Cointelegraph.