Bitcoin continues to lose ground and the price closes quickly at $60,000 amid record ETF outflows.
The $60,000 level has been touted by analysts as a key support below which selling could turn even uglier.
Jean-David Péquignot, Chief Commercial Officer at leading crypto options exchange Deribit said that the price is critical not only because it is a psychological level with round numbers. More importantly, it is a structural threshold with real consequences for institutions and derivatives market participants.
The cost basis problem
According to Péquignot, a significant portion of institutional money — consisting of ETF buyers, large holders and short-term speculators — bought bitcoin at prices between $60,000 and $67,000 over the past year.
With the largest cryptocurrency now trading within this range, these buyers are sitting at or near their cost basis, essentially at break-even. If prices fall further, unrealized or paper losses will increase and the stock will become expensive, especially when AI stocks and other parts of the traditional market are rising like there’s no tomorrow.
“As the price undercuts their cost basis, the resulting unrealized losses could encourage rush selling, especially as the opportunity cost of holding BTC increases relative to a rising AI stock sector,” he said.
Michael Saylor, the high-profile executive chairman of Strategy (MSTR), the largest publicly traded bitcoin holder, also blamed capital rotation for recent BTC losses.
Derived problem
Things get mechanical after that.
On Deribit, there is over $1.2 billion in notional open interest on the $60,000 strike-put options, which pay out if prices fall below this level. Investors have bought these as a hedge against a prolonged sell-off.
The problem, however, is that market makers, who are on the opposite side of investors, are now short puts, or more precisely, “short gamma”.
So as BTC approaches $60,000, market makers and traders will be forced to sell spot BTC or futures to balance their books. All things being equal, this hedging could accelerate sales and turn an orderly decline into a chaotic one, Péquignot said.
He also pointed out that there are too many leveraged longs in the system and a break below $60,000 could lead to more liquidations, increasing downward momentum.
“With leverage still not fully flushed out of the system, a break of $60,000 could quickly worsen safety metrics, triggering a wave of automated long liquidations,” he said.
Note that billions of dollars in leveraged longs, or bullish plays tied to BTC and other tokens, have already been liquidated this week.
