Bitcoin has erased gains made over the summer, giving back earlier gains fueled by enthusiastic support from Wall Street and heavy institutional buying. During the New York session on Tuesday, Bitcoin fell 3.7% to $102,870, the lowest level since June 23. The price has fallen nearly 20% from a record high reached a month ago. Ethereum once fell as much as 3.9%, and many alternative currencies also experienced similar declines, causing many tokens that are not easy to trade and have relatively low liquidity to fall by more than 50% this year.
The turning point came in mid-October, when a violent wave of liquidations wiped out billions of dollars in long positions. Since then, traders have been watching from the sidelines. Bitcoin futures open interest is still well below pre-crash levels, and even if financing costs have improved, there are still few people willing to re-enter the market. The result: Bitcoin is up just over 10% this year, lagging behind stocks and remaining unsatisfactory as a portfolio hedge.
“Bitcoin’s fall to June lows reflects a market structure that is still trying to digest the psychological fallout from the massive liquidation event in October, which fundamentally changed the way market participants viewed the overall market downtrend,” said Chris Newhouse, director of research at Ergonia, which focuses on decentralized finance.
Additionally, less than $500 million in leveraged positions were unwound in the futures market during Tuesday’s downturn, suggesting a light trading environment, according to data compiled by Coinglass. It was about $1.2 billion on Monday, well below the record of about $19 billion on Oct. 10.
At the same time, options traders have built a large number of hedges against further declines. According to data from Deribit, a cryptocurrency exchange owned by Coinbase, demand is strongest for put option contracts with an exercise price of $80,000 and expiring in late November.