Key takeaways:
Bitcoin’s recovery following Friday’s $19 billion flash crash indicates robust long-term demand despite short-term risk aversion.
Derivatives traders are proceeding with caution, as revealed by arbitrage opportunities and negative funding rates that indicate increased counterparty risk.
Bitcoin (BTC) regained the $114,000 level less than 48 hours after Friday’s flash crash, which erased $15 billion from BTC futures open interest. While Bitcoin’s resilience after such a significant liquidity event was notable, various factors could still hinder a retest of the $125,000 mark.
As long as investors view Bitcoin as a risk asset, with its partial correlation to tech stocks, sustained bullish momentum will likely depend on stronger confidence in global economic growth.
US job market data and US-China relations negatively affecting Bitcoin’s price
Fears of an economic slowdown, particularly after new signs of weakness in the US labor market, have led to increased risk aversion among investors. Carlyle estimates that US employers added 17,000 jobs in September, down from an already weak 22,000 in August, according to The Wall Street Journal.
Demand for US bonds surged, pushing yields close to 3.5% as investors accepted lower returns for the safety of government-backed assets. This shift was also driven by rising concerns that the trade war between the United States and China could escalate on Nov. 10, when the temporary agreement limiting US import tariffs is set to end.
US President Donald Trump stated on Truth Social on Sunday that an extension “should be worked out” as both nations seek economic growth. However, no solid developments have emerged beyond plans for discussions between the two leaders.
US Treasury Secretary Scott Bessent characterized China’s rare earth export controls as “provocative.” New Chinese regulations now require foreign companies producing specific materials to obtain an additional export license, even when local firms are not directly involved. China continues to lead these markets, which are crucial for tech manufacturing, according to Reuters.
Additional macroeconomic uncertainty arises from the ongoing US government shutdown, which has postponed the release of vital data, including consumer inflation statistics and wholesale prices. This lack of clarity complicates the Federal Reserve’s outlook and heightens investor risk aversion ahead of Fed Chair Jerome Powell’s address on Tuesday.
Liquidity issues in BTC derivatives and regulatory security risks
Regardless of potential improvements in US-China relations, traders remain wary regarding Bitcoin derivatives. Some markets still present arbitrage opportunities, such as discrepancies between perpetual contracts and spot prices on the same platform. The limited activity from market makers indicates increased counterparty risk.
The Bitcoin perpetual futures funding rate at Binance remains negative, meaning that shorts (bearish positions) are paying for leverage. Meanwhile, this indicator has returned to a normal positive range on other platforms, creating possible arbitrage opportunities based on rates.
Joe McCann, founder and CEO of Asymmetric Financial, mentioned on X that “a very large market maker” must have been eliminated during Friday’s crash, which explains the sharp price gaps across exchanges and the “insane dislocations” on Binance. Even if these assumptions are short-lived, traders may continue to hold off on re-entering the cryptocurrency market.
Related: Centralized exchanges face claims of massive liquidation undercounts
Other market participants have strongly criticized how exchanges managed liquidation triggers and derivatives pricing. Crypto.com CEO Kris Marszalek called for regulators to “conduct a thorough review of the fairness of practices,” highlighting downtimes that affected only certain users, along with a lack of compliance measures regarding “internal trading.”
Bitcoin’s distinctive characteristics, which could allow it to benefit from increasing demand for independent scarce assets, were not hindered by Friday’s flash crash. However, traders’ short-term risk appetite has evidently decreased, potentially delaying the ascent to a new all-time high by several weeks or months.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
