Author: Frank, PANews
Following the sharp downturn in the crypto market on October 11, the market appears to have entered a prolonged 'cooling-off period.' For most investors, rather than predicting rises or falls, it may be more important to understand how much liquidity has recovered after the heavy blow on October 11. Additionally, how do the dominant funds in the market view the future trend?
In response, PANews attempts to analyze the current capital landscape through several data points, including order book depth, the options market, and stablecoins. The final conclusion is that the market does not seem to have witnessed a true recovery but has instead fallen into a structural split characterized by continuously diminishing liquidity and accelerating defensive positioning by institutional funds.
Micro Liquidity: Fragile Balance and Vanishing Support
To clarify the current state of liquidity, the difference in order book depth is one of the most direct indicators that can illustrate the issue.
Taking the depth chart of the Binance BTC/USDT perpetual trading pair as an example, it is evident that since October, the depth of the buy-side order book has become increasingly lower, dropping from a level generally above $200 million to between $100 million and $200 million. Similarly, the depth of sell orders has also noticeably declined, remaining below $200 million.
In terms of the difference, the gap between long and short order depths has recently become significantly more balanced, with daily differences hovering around $10 million since November. These figures indicate that the entire market has now entered a state of relative equilibrium between longs and shorts, but with continuously diminishing liquidity.
Regarding open interest, the total open interest of altcoins (excluding BTC and ETH) has not shown growth as prices reached their lows but has instead continued to decline. In contrast, there was a deep market correction in April when open interest across the market rebounded sharply after prices hit their lowest point (sometimes even before prices bottomed out).
Meanwhile, trading volumes in the altcoin futures market have also contracted, without any noticeable increase in volume driven by bargain hunting. Based on these figures, the altcoin market has entered a state of neglect.
Options Market: Retail Investors Buying Lottery Tickets, Major Players Betting on Declines
Another interesting data point is the ratio of crypto options to crypto futures open interest. The proportion of BTC options has surged since the beginning of the year, even surpassing 100% at its peak, and currently remains around 90%. Previously, the proportion of BTC options had consistently hovered around 60%. This means that the BTC market, which was once dominated by futures contracts, has now fully shifted to being led by options contracts. However, the ratio of ETH's crypto options to crypto futures open interest has dropped to an extremely low level this year, approximately 30%.
Behind this data lies confirmation of two issues. First, the dominance of the BTC market has been fully seized by institutions and hedge funds, while ETH and other altcoins no longer seem to be trading options for these entities. Another key point is that in predicting the BTC market, data from the options market has become increasingly important. We can observe this trend in the total open interest of BTC options, which remains high even as prices decline.
Therefore, the options expiration date and the maximum pain point have become crucial reference indicators in the current BTC market. Based on the latest data, the most significant options expiration date is December 26, where the total volume of call options reached 192,000, while the total volume of put options was only 74,200. However, the total value of these put options amounted to $508 million, compared to just $71.25 million for the call options. This inverted data indicates that call options are currently very cheap (approximately $370), while put options are extremely expensive (reaching $6,800).
When combining this with the distribution of options strike prices, we can see that the majority of call options are concentrated above the $100,000 price level, making the likelihood of these options being exercised on December 26 very low. Thus, despite their large numbers, these call options are more akin to speculative 'lottery ticket' bets. Conversely, the strike prices of a large number of put options are concentrated at $85,000 or lower. Additionally, the total market value of put options has reached $1.124 billion, while the market value of call options stands at only $373 million (the premium investors pay to purchase options). In summary, although there are more bullish investors, a larger proportion of capital (around 75%) is betting on or hedging against a decline.
Moreover, the current maximum pain point is at the $100,000 mark. This suggests that the $100,000 price level could become a focal point of competition between options buyers and sellers this month. For market makers (options sellers), they may currently represent the main bullish force in the market, and if the price moves to around $100,000, they will emerge as the biggest winners.
However, for institutions that have heavily invested in put options, many are likely using options to hedge against downside risks in spot markets. Although fundamentally most of them may be bearish for defensive reasons, the fact that they continue to allocate significant funds to expensive put options underscores their notably pessimistic outlook on future market trends.
Stablecoins: Regulatory Retreat, Speculative Capital on Hold
In addition to options data and order book data, stablecoin metrics are also critical indicators for assessing current market liquidity and direction, particularly the flow of stablecoins on exchanges. Nevertheless, this data also highlights significant divergence within the market.
On the other hand, USDC presents a completely different picture. Starting from the end of November, large amounts of USDC were withdrawn from exchanges, with reserves plummeting from $15 billion to approximately $9 billion, a drop of 40%. As the leading compliant stablecoin, USDC’s primary users include U.S.-based institutions and regulated funds, representing the institutional segment of the market. Clearly, this group is accelerating its exit from the market.
From the contrasting movements of inflows and outflows, the current market appears to reflect retail and speculative capital waiting to buy the dip, while compliance-oriented institutions are retreating. This observation aligns with the earlier analysis of changes in the BTC options market. Of course, another possibility is that under the risk of market downturns, substantial holdings of crypto assets are being converted into stablecoins as a hedge.
In fact, the data and indicators for evaluating the market go far beyond those mentioned above, but overall, they almost all lead to similar conclusions. The market has not truly recovered after the sharp decline on October 11. What we are observing is a market characterized by liquidity shortages and significant divergence between institutional investors and retail traders. Retail investors and speculative funds are holding their positions and staying on the sidelines, while compliant institutions or major capital flows are accelerating withdrawals from the spot market and paying high premiums in the options market to build defensive short positions.
The current market does not appear to be a bottom poised for a rebound; instead, it resembles a defensive battle of 'institutional withdrawal and speculative fund gaming.' At this point, paying attention to whether the institutional defense line at $85,000 is breached is far more pragmatic than hoping for a breakthrough at $100,000.
