How Bitcoin Set Itself Up for This Sell-Off

“Okay, so now what?” That was basically what the bitcoin market was saying over the past few weeks. Then a sell-off in the spot market over the weekend triggered several hundred million dollars’ worth of futures liquidations that helped to send prices plummeting further.

Ever since the massive rally culminating in the all-time high of $68,990.90 on Nov. 10, prices came down and stayed south of $60,000 over for the most recent couple of weeks. Some of the hype, it seems, was related to the bitcoin futures exchange-traded fund (ETF) launch, and the subsequent letdown seems likewise to reflect a market that doesn’t know what to do next.

Look at the ProShares Bitcoin Strategy ETF (BITO), which hit the market Oct. 19. Within two days, assets under management (AUM) reached $1.2 billion and spot bitcoin was up over 50% from the previous month.

Anticipation had been building for several weeks that the U.S. Securities and Exchange Commission (SEC) was going to allow some sort of a bitcoin-based ETF to start trading, which it did on Oct. 15.

And then … meh.

The first bitcoin futures ETF’s AUM was valued around $1.4 billion as of Friday. That’s roughly how much it was when bitcoin prices peaked. What’s interesting to note is that the number of shares in the ETF, which trades like a stock, has grown steadily since launch with only a couple of net declines. On Oct. 21, it was just shy of 30,000 shares while now it’s a little less than 40,000.

Even open interest (OI) in dollar terms on the perpetual futures market, which began taking off at the end of September when rumors began percolating about the SEC’s ultimate move, was gently coming down prior to the weekend’s plunge. Reaching a high of $26.6 billion on Oct. 20, open interest was at about $22 billion by Friday.

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Author: Meshkat

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