A well-known crypto entrepreneur has warned that Bitcoin (BTC) and Ethereum (ETH) are on the cusp of another catastrophic sell-off event, despite being far lower than their all-time highs.
Former BitMEX CEO Arthur Hayes claims he uses the decentralized finance (DeFi) analytics software Parsec to keep a close eye on on-chain data.
According to Hayes, on-chain data for Wrapped Bitcoin and Ethereum show that the majority of liquidations resulting from borrowers failing to satisfy their commitments have already occurred following this week’s crypto bloodbath.
With DeFi players providing no risk to the crypto ecosystem, Hayes says he’ll be watching options flows to see where the line is drawn for dealers or market makers.
“Now let’s focus on the listed and unlisted options flows. Looking at Deribit exchange, most of the open interest is at R320 557 and for BTC and ETH, respectively. We can also assume that there are massive over-the-counter structured products centred around those strikes as well.”
The striking price in options trading is the price at which the contract’s underlying assets, in this case, BTC and ETH, can be sold. Hayes believes that the closer we get to BTC $2000 (R320 557) and to $1000 (R16 028) ETH, the more market makers will be forced to sell their Bitcoin and Ethereum.
If these levels are breached, the crypto venture capitalist warns that the major players will be forced to liquidate their BTC and ETH holdings on the open market.
“As far as the charts go, you better get out your Lord Satoshi prayer book and hope the lord shows kindness to the soul of the crypto markets. Because of these levels break, you might as well shut down your computer because your charts will be useless for a while.
If these levels break, $20,000 (R320 557) BTC and $1,000 (R16 028) ETH, we can expect massive sell pressure in the spot markets as dealers hedge themselves. We can also expect that there will be some over-the-counter dealers and that will be unable to hedge properly and might go belly up.“
At the time of writing, Bitcoin is worth R355 274, while Ethereum is at R19 570.