Bitcoin Recoups All of Monday’s Big Losses. Why Investors Are Still on Edge.

The total market value of all cryptocurrencies fell below $3 trillion on Monday, but was back above that level on Tuesday. (Dreamstime)

Key Points

• Bitcoin’s price rose back above $90,000, but is still down 27% 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 Dec. 5.

Bitcoin staged a dramatic rally Tuesday, rising nearly 10% over its Monday low. The plunge at the start of the week had soured risk appetite across wider markets.

Bitcoin was trading at $91,928 at 3 p.m. Eastern time on Tuesday. At its lowest point late Monday morning, the token was trading at $83,840.26. The largest digital asset had been trading above $90,000 last week before plunging on Sunday and into Monday to near $85,000. It’s still down 27% from its October peak. Rising above the $90,000 was a key threshold because that is the price that many traders bought in at.

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

“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 Friday.

“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, Ethereum , the second-largest crypto, as well as XRP , Solana , and “memecoin” Dogecoin were all up sharply as well. Solana saw the biggest gain of 12% over the 24 hours through 3 p.m. Eastern time on Tuesday.

Write to Anita Hamilton at anita.hamilton@barrons.com and Jack Denton at jack.denton@barrons.com