Key takeaways:
Bitcoin’s ability to bounce back following Friday’s $19 billion flash crash indicates sustained long-term demand despite short-term risk aversion.
Derivatives traders are exercising caution, as arbitrage opportunities and negative funding rates suggest 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. Despite this significant liquidity event, Bitcoin demonstrated resilience, though several factors may still delay a retest of the $125,000 mark.
As long as investors perceive Bitcoin as a risk asset and maintain its partial correlation with tech stocks, continued bullish momentum will likely depend on improved confidence in global economic growth.
US job market data and US-China relations negatively impacting Bitcoin’s price
Fears of a potential economic slowdown, especially following fresh indicators of weakness in the US labor market, have made investors more cautious. 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 settled for lower returns in exchange for the security of government-backed assets. This shift was further fueled by rising anxieties that the US-China trade war could escalate on Nov. 10, when the temporary truce 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 progress. However, no substantial breakthroughs have been disclosed beyond proposals for discussions between the two leaders.
US Treasury Secretary Scott Bessent labeled China’s rare earth export controls as “provocative.” Under new Chinese guidelines, foreign companies producing specific materials will now require an additional export license, even if Chinese firms are not directly involved. China continues to dominate these critical markets necessary for tech manufacturing, according to Reuters.
Additional macroeconomic uncertainty arises from the ongoing US government shutdown, which has delayed the publication of vital data, including the consumer inflation report and wholesale costs. This lack of clarity complicates the US Federal Reserve’s outlook and has prompted investors to adopt a more risk-averse stance ahead of Fed Chair Jerome Powell’s speech on Tuesday.
Liquidity gaps in BTC derivatives and regulatory security risks
Regardless of the potential for an improvement in US-China relations, traders are remaining extremely cautious regarding Bitcoin derivatives. Some markets still offer arbitrage opportunities, such as discrepancies between perpetual contracts and spot prices on the same exchange. The limited activity from market makers indicates increased counterparty risk.
The Bitcoin perpetual futures funding rate at Binance continues to be negative, meaning shorts (bearish positions) bear the cost of leverage. Meanwhile, this indicator has returned to a normal positive range on other exchanges, paving the way for potential arbitrage opportunities on rates.
Joe McCann, founder and CEO of Asymmetric Financial, mentioned on X that “a very large market maker” must have been eradicated during Friday’s crash, which would account for the sharp price discrepancies across exchanges and the “insane dislocations” observed on Binance. Even if these hypotheses are fleeting, traders are likely to postpone re-entering the cryptocurrency market.
Related: Centralized exchanges face claims of massive liquidation undercounts
Other market participants have strongly criticized exchanges for their handling of liquidation triggers and derivatives pricing. Crypto.com CEO Kris Marszalek urged regulators to “conduct a thorough review of the fairness of practices,” highlighting downtimes that affected specific users and the lack of compliance measures regarding “internal trading.”
Bitcoin’s distinctive attributes, which position it to potentially benefit from increasing demand for independent scarce assets, were unaffected by Friday’s flash crash. Nevertheless, traders’ short-term risk appetite has evidently waned, potentially delaying the path 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.
