$420M in leveraged long traders liquidated after XRP rallies to $1.96

XRP price dropped by 20% shortly after making a 2021 high at $1.96, but have the altcoin’s bullish fundamentals changed?

XRP holders couldn’t have asked for a better year as the cryptocurrency rallied almost 800% and flirted with a $2 level in the early hours of April 14. 

In addition to achieving its highest level since January 2018, this robust price increase signals that investors are not worried about the ongoing SEC “unregistered securities offering” dispute.

However, just 6 hours after rallying to $1.96, XRP price crashed by more than 20%. During an interview, DCG Group CEO Barry Silbert said it would be risky for exchanges and companies in the United States to relist XRP ahead of receiving the SEC’s blessing. These remarks may have contributed to the unprecedented $420 million long liquidations on derivatives exchanges today.

XRP price in USDT at Binance. Source: TradingView

Over the past couple of weeks, the primary catalysts for XRP’s rally have been victories in Ripple’s legal battles. Lawyers representing Ripple were granted access to internal SEC discussions regarding cryptocurrencies, and more recently, a court denied the disclosure of two Ripple executives’ financial records, including CEO Brad Garlinghouse.

Considering the recent rally, pinpointing a single reason for the price correction will likely be inaccurate. Nevertheless, the impressive $420 million long liquidations past 24-hours exceed those of Feb. 1 when XRP price crashed by 46% in two hours.

XRP futures aggregate liquidations. Source: Bybt

The only logical reason behind this staggering liquidation is excessive leverage used by buyers. To confirm such a thesis, one must analyze the perpetual contracts funding rate. To balance their risks, exchanges will charge either longs or shorts depending on how much leverage each side is demanding.

XRP perpetual futures 8-hour funding rate. Source: Bybt

The chart above shows that the 8-hour funding rate is surpassing 0.25%, which is equivalent to 5.4% per week. Although this is excessive, buyers will withstand these fees during strong price rallies. For example, the current upward price move lasted for almost three weeks, and prior to that another took place in early February.

Blaming the liquidations exclusively on leverage seems a bit extreme, although it certainly played its part in amplifying today’s correction.

Moreover, the record growth in XRP futures open interest was accompanied by a hike in the volume at spot exchanges. As a result, the eventual impact from more significant liquidations should have been absorbed by the increased liquidity.

Cascading liquidations will always take place in volatile markets. Thus investors should focus on how long it takes until the price recovers from it.

Fundamentally, a 10% or 20% intraday drop should not be interpreted differently. The correction depends on how many bids were previously stacked at exchange orderbooks and is not directly related to investors’ bullish or bearish sentiment.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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This month’s Ethereum options expiry suggests ETH’s upside is limited

Ethereum price has been in an uptrend since the start of the year but key options indicators suggest overcoming the $2,000 level will be a challenge.

To date, Ether (ETH) price has gained 85% in 2021, and options traders are still highly optimistic about the altcoin’s short-term performance.

The upcoming March 26 expiry holds over 96,000 ($172 million) call option contracts open interest between $2,240 and $3,520. Does a 25% or higher gain correctly reflect the current market sentiment, or are these traders simply over-optimistic about Ether’s odds?

Ether price in USD. Source: TradingView

Even though the effective price for the right to acquire Ether at a fixed price on March 26 is much lower, these options cost buyers at least $2 million. If Ether fails to increase by 25% from the current $1,808 price in two weeks, these $2,240 call options will be completely worthless.

Ether options aggregate open interest, March 26. Source: Bybt

As shown above, the call-put ratio is relatively balanced at 1.07, and the more bearish put options above the $1,800 strike are nonexistent. Meanwhile, bullish traders have crowded the scene above $2,240, partially because of their low price. The cost per option contract over the past couple of weeks ranged from $6 to $40.

Even if these call option holders previously bought while Ether was trading below $1,400, it would make sense to close the position and lock in profits. These options will lose value over time as the March 26 deadline arrives unless the price rises above their respective strike price.

Therefore, either these traders effectively expect Ether to break $2,240 in two weeks, or the options are being used in more complex strategies. Cointelegraph previously explained how $10,000 Ether call options are often used on calendar spreads.

The primary risk indicator for options is neutral

To assess traders’ optimism level after Ether marked a local $1,880 top on March 9, one should look at the 25% delta skew.

Whenever the options market is unwilling to take downside risk, the indicator shifts negatively. On the other hand, a positive 25% delta skew indicates traders are demanding less premium (risk) for upside protection.

3-day Ether options 25% delta skew. Source: laevitas.ch

The above chart shows the indicator ranging from 5 to negative 10, which is considered a neutral zone.

Had option traders effectively been bullish, the upside-protection call options would have been trading at a premium.

There’s a possibility, as previously stated, that investors are using a more complex strategy that involves different expiry dates or strikes. Still, if these options have been bought exclusively for upside leverage, it certainly doesn’t reflect the overall sentiment as measured by the skew indicator.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Pro traders avoid Bitcoin longs while cautiously watching DXY strengthen

Large corporations are buying Bitcoin at an accelerating pace, but pro traders are reluctant to open BTC longs while the dollar index strengthens.

Bitcoin (BTC) price might have re-established $50,000 as a support, but the optimism of professional traders is nowhere near the levels seen before the 26% drop to $43,000 on Feb. 28. 

The current scenario is far from bearish, but derivatives indicators do not reflect the substantial purchases from institutional clients, including Microstrategy, Meitu, and most recently, Aker ASA, a Norweigian oil conglomerate.

Bitcoin price, USD. Source: TradingView

The longer Bitcoin stays above a certain threshold, the more confident investors get. For example, the last daily close below $45,000 was 28 days ago. Therefore it might take a couple of weeks until a more robust support level is created. For this reason, pro traders might not be comfortable with adding long positions as the U.S. Treasury yields and the dollar are on the rise.

Regardless of the reasons behind BTC’s current comfort level near $50,000, the price correction that followed the $58,300 all-time high caused massive liquidations, which partially explains the recent lack of bullishness from pro traders.

BTC futures contracts aggregate liquidations. Source: Bybt.com

This price drop caused $3.6 billion long future contracts to liquidate from Feb. 21 to Feb. 25, and abrupt moves like these hold a considerable impact on arbitrage trades as whales and market makers are forced to add collateral (margin).

The futures premium held very healthy levels

Basis is also frequently referred to as the futures premium, and it measures the premium of longer-term futures contracts to the current spot market levels.

The fixed-month contracts usually trade at a slight premium, indicating that sellers request more money to withhold settlement longer. On healthy markets, futures should trade at a 10% or more annualized premium, otherwise known as contango.

Whenever this indicator fades or turns negative, this is an alarming red flag. This situation is known as backwardation and indicates that the market is turning bearish.

OKEx 3-month BTC futures basis. Source: Skew.com

The above chart shows that the indicator peaked at 35% on Feb. 17 as Bitcoin surpassed the $50,000 resistance. Nevertheless, it has kept above 16% during the entire correction down to $43,000.

Considering the 16% interest rate offered on stablecoin deposits at platforms like Yearn.finance, Aave, and Curve, one can assume that professional traders are neither bullish or bearish on Bitcoin right now.

The options skew moved from bullish to neutral

To clarify the status of the trend, investors should look at the Bitcoin options markets. Call options allow the buyer to acquire BTC at a fixed price on contract expiry. On the other hand, put options provide insurance for buyers and protect against BTC price drops.

Whenever market makers and professional traders are leaning bullish, they will demand a higher premium on call (buy) options. This trend will cause a negative 25% delta skew indicator.

BTC options 25% delta skew. Source: laevitas.ch

The negative 10% delta skew seen until Feb. 21 signaled a higher premium for upside protection and was considered bullish. On the other hand, the recent negative 5% indicator is deemed neutral as the premium on both call and put options is roughly balanced.

Some will say the glass is half full, as the recent BTC price recovery wasn’t enough to spark interest from arbitrage desks and professional traders. Still, this skeptical view leaves room for upside surprise when those whales finally give in for the institutional buyers’ appetite.

Either way, the fact that the derivatives markets held up surprisingly well during the recent 26% drop to test $43,000 is a positive outcome.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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What Ethereum killer? On-chain data shows competitor networks are still behind

Critics say Ethereum’s soaring gas fees will cause the project to fall victim to its competitor blockchains but on-chain data suggests otherwise.

Ether (ETH) remains the second-largest cryptocurrency and it absolutely dominates the smart contract industry according to an array of network usage metrics. Even though the network has been overwhelmed by peak activity which is causing median fees to surpass $10, the network effect of its large user and developer base seems to be enough to sustain its position as the second ranked cryptocurrency by market capitalization.

Nevertheless, some key on-chain metrics are beginning to show a potential change in Etheruem’s supremacy, which raises the age old question of whether an “Ethereum killer” will be able to dethrone the top network?

Smart contracts Total Value Locked (TVL) ranking. Source: defillama.com

As shown above, the Ethereum network vastly dominates decentralized applications (dApps). Due to its high gas fees for transactions, when analyzing the number of active addresses, the Ethereum newtork appears to be at a disadvantage to its competitors.

Over the past week, FLOW blockchain’s NBA Top Shot had almost 80,000 active addresses which is five times larger than Ethereum’s Rarible NFT marketplace or even SushiSwap. Thus, the first data to analyze is the daily active addresses number across each blockchain.

Daily active addresses. Source: coinmetrics.io

The chart above shows that Tron (TRX) has recently surpassed Ethereum in daily active addresses, although this metric can be easily inflated. The Tron network has virtually zero fees for simple transactions which creates an unfair comparison.

By measuring effective transactions and transfers,it’s easier to exclude the addresses that are not contributing to the network.

Transactions and transfers, adjusted, USD. Source: coinmetrics.io

By doing this we can see that Tron doesn’t come even close to Ethereum’s numbers, although Cardano’s (ADA) recent price growth has led to a virtual tie between the two.

Oddly enough, the Tron network holds over 14.5 billion of the Tether (USDT) in circulation, which by itself should boost network usage metrics. Meanwhile, Cardano has 90% fewer daily active addresses than Ethereum, yet, both networks handle the same amount of transfers and transactions.

This is especially problematic as Ethereum handles 20 billion Tether tokens and also manages all the transactions of Chainlink (LINK), USD Coin (USDC), Wrapped ETH (WETH), and many others.

ETH, ADA, NEM, NEO, TRX market cap, USD million. Source: cointrader.pro

This data should, at least theoretically, be reflected in the market capitalization. Thus, it makes sense for Ethereum to dominate the ranking as no other network is even close to its decentralized applications.

Moreover, when analyzing the transfer and transactions’ value, Ethereum leads by 50 times if we exclude Cardano’s questionable figures discussed earlier.

For the time being, the data suggest that the four “Ethereum killers” analyzed above are unlikely to “flippen” the Ethereum network anytime soon.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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99% gone in 60 seconds: How a Polkadot trader may have crashed DOT futures

Polkadot (DOT) futures at Binance flash-crashed by 99.5%, potentially generating an $8.3 million profit for the ‘trader’ if they used this clever strategy.

On March 5, Polkadot (DOT) experienced a flash crash at Binance perpetual futures which resulted in the contract trading as low at $0.20. While this could have been an honest fat-finger trading mistake, a number of indicators point to a planned-attack.

While no hard evidence will likely ever emerge, the open interest increase just 24 hours ahead of the event indicates that an attacker could have generated a $8.3 million profit by manipulating Binance’s matching engine.

DOT perpetual futures on Mar. 4, USD pricing. Source: Binance

As shown above, during the 3-minute candle, $20.4 million worth of DOT contracts traded. Although the swift downside move was a 99.5% flash crash, it did not result in cascading liquidations.

Futures contracts liquidations are calculated using the price of spot exchanges. Thus, a flash-crash exclusively on futures prices would not impact most traders. According to Binance:

“The Price Index is a bucket of prices from the major Spot Market Exchanges, weighted by their relative volume.”

As per Binance’s support website, Polkadot coin-margined futures index price is composed of Kraken (DOT/USD), Binance (DOT/USD), Binance (DOT/BTC), OKEx (DOT/BTC) and Huobi’s (DOT/BTC) market.

It is worth noting that this specific contract is coin-margined instead of the more liquid Tether-settled one. Cointelegraph recently analyzed those differences, stating that the Tether-based contract “doesn’t need an active hedge to protect collateral (margin) exposure, thus it’s a better choice for retail traders.”

Data uncovers the planned ‘attack’

For an attacker to set up this trade, the first step would be building a leveraged long position while simultaneously creating short exposure using another account.

To create a flash crash while risking the minimum amount possible, preferably, this event should take place not more than a couple of days ahead of the planned ‘attack’.

DOT/USD perpetual futures open interest. Source: Binance

As depicted above, DOT/USD perpetual futures open interest grew from 1.92 million DOT to 3.34 million some 30 hours ahead of the flash crash, equivalent to a $47 million increase.

To differentiate the attack from a regular leveraged-long, one should track the long-to-short ratio. To maximize gains from the flash crash, the attacker would have created a substantially higher short leveraged amount, thus impacting the long-to-short ratio.

DOT/USD perpetual futures long-to-short ratio. Source: Binance

The data above shows that the average 4.25 ratio favoring longs was severely impacted during the open interest increase. This would confirm the theory of a coordinated attack.

How the trade is executed

By holding a considerably larger net short position when both accounts are combined, the attacker would profit from a flash crash. All this entity needs to initiate the event is to market sell the net long position. This move would trigger a substantial sell order, crashing the futures contract. Meanwhile, the other account, previously net short, would score big.

762,000 DOT contracts traded during the 3-minute flash-crash candle at a $26.73 average price. Considering the change in the long-to-short ratio, the attack most likely created a $30 million long position. Meanwhile, the secondary account held a $10 million net short exposure.

Although far from the 99.5% price crash, this 19% drop from $33 likely generated a $9.5 million gain for the account holding the $10 million short exposure if 5x leverage was in play. On the other hand, the collateral lost for the $30 million long position amounts to $1.2 million is 25x leverage was deployed.

It is important to emphasize that holders of Binance DOT futures contracts were unlikely affected by the flash crash. Therefore, the attackers’ net long account should be holding a negative balance, which the Binance insurance fund will likely cover.

The above calculations are mere speculations based on exchange-provided data. As previously mentioned, it is unlikely that hard evidence of this attack will ever surface.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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