BitMEX founder Arthur Hayes considers the possibility that Bitcoin has already printed a bear market trough, saying three key players likely ran out of BTC to sell.
In a new blog post, the crypto veteran identifies three groups of investors who have been forced to part with their Bitcoin treasures this year due to the misuse of leverage: Loan companies and centralized commerce, Bitcoin miners and ordinary speculators.
Looking first at centralized firms, Hayes says these institutions likely unloaded most of their BTC after the collapse of crypto hedge fund Three Arrows Capital (3AC) and Sam Bankman-Fried’s trading firm Alameda Research.
“When these two firms [Alameda and 3AC] got in trouble, what did we see? We have seen large transfers of the most liquid cryptos – Bitcoin (WBTC in DeFi) and Ether (WETH in DeFi) – to centralized and decentralized exchanges which were then sold off. This happened during the big move…
I can’t demonstratively prove that all of the Bitcoins held by these failing institutions were sold off during the multiple crashes, but it appears they did their best to liquidate the most liquid crypto collateral possible just before they went under.
The [centralized lending firms] and all major trading companies have already sold most of their Bitcoins. All that remains are illiquid sh**coins, private stakes in crypto companies, and locked presale tokens.
As for Bitcoin miners, Hayes says they’ve sold their BTC since the first credit crunch in June, when the crypto king fell below $20,000 for the first time in over 18 months.
“They have to do this to try to stay current on their heavy trust debts. And if they don’t have any debt, they still have to pay their electricity bills – and because the price of Bitcoin is so low, they have to sell even more of it to keep the facility operational.
As for ordinary speculators, Hayes says he looks at the amount of open interest (OI) on long and short contracts to gauge the level of speculation in the markets. According to him, OI’s all-time high coincided with BTC’s all-time high. The OI also dipped as the market fell, suggesting speculators were wiped out.
“Looking at the sum of OI across all major centralized crypto derivatives exchanges, we can see that the local low in OI also coincided with Bitcoin’s stab below $16,000 on Monday, November 14. Now the OI is back to levels not seen since early 2021.
The timing and magnitude of the OI reduction leads me to believe that most of the over-leveraged long positions have been extinguished.
Hayes concludes by saying that he is not 100% certain that Bitcoin’s current bear market low around $15,900 is the all-time low, but he says BTC has rebounded from this level due to “of the cessation of the forced sale caused by a credit crunch”. He also notes that everything is cyclical.
“What goes down will come up.”
At the time of writing, Bitcoin is changing hands for $17,170.
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