Bitcoin Steadies After Selloff. Why Traders Are Bracing For Another Big Drop.

The total market value of all cryptocurrencies has fallen below $3 trillion. (Dreamstime)

Key Points

• Bitcoin’s price advanced less than 1% to around $87,000, but is down 30% from its October peak.
• Traders anticipate a potential decline to the $65,000-$74,000 range if Bitcoin breaches the $80,000 support level.
• The Bitcoin derivatives market shows bearish sentiment, with a concentration of ‘puts’ at a $78,000 strike price for December 5.

Bitcoin and other cryptocurrencies were mostly steady on Tuesday after digital assets plunged to start the week, souring risk appetite across wider markets.

But sentiment remains bearish, with positions in the Bitcoin derivatives markets suggesting that traders are bracing for another big drop.

The price of Bitcoin advanced less than 1% over the past 24 hours to around $87,000. The largest digital asset had been trading above $90,000 last week before plunging on Sunday and into Monday to near $85,000. Bitcoin is down by 30% from its October peak.

“Traders are closely monitoring the critical $80,000 support level for Bitcoin, with most…anticipating a breach and predicting a potential decline to the $65,000-$74,000 range,” wrote market analysts at crypto exchange Binance. “The market is experiencing noticeable division: some members suggest increasing short positions on a rebound, while a few traders attempted to buy at the $86,900 level, facing immediate skepticism.”

Evidence in the Bitcoin derivatives market— where traders place bets on specific future price swings —suggests bearish sentiment is prevailing, with preparations for another big drop on the horizon.

There is a concentration of “puts”—options contracts that pay out if prices drop to a specific level or “strike price”—for Bitcoin at $78,000 by the end of this week, based on open interest levels on the derivatives exchange Deribit. The $78,000 level has attracted more traders, in terms of the number of active options contracts, than any other strike price due for expiration on December 5.

“I don’t believe the bottom is in…the market expects outsized swings as we head into the new year,” Nick Forster, founder at crypto options platform Derive.xyz, wrote in a Tuesday note. “The market is bracing for volatility, but pricing in slightly less catastrophic downside compared to last week.”

Beyond Bitcoin, Ether —the second-largest crypto—lost 1.5% over the past 24 hours to $2,800. Smaller cryptos or altcoins were weakening, with Ripple retreating 2%, Solana slipping 1%, and “memecoin” Dogecoin down 2%.

Write to Jack Denton at jack.denton@barrons.com