BTC price drops 3.5% as Bitcoin derivatives ‘overheating’ sparks concern

Bitcoin (BTC) fell below $35,000 after opening on Wall Street on November 2 as analysis warned of derivatives overheating.

Bitcoin Reversals Post-Fed Gains

Data from Cointelegraph Markets Pro and TradingView tracked BTC’s retreating price, which erased the ground it had regained overnight.

The largest cryptocurrency hit new 18-month highs of $35,968 on Bitstamp before consolidating in a process that was gaining momentum at the time of writing.

The highs followed encouraging words from Jerome Powell, chairman of the US Federal Reserve, who suggested in a speech that interest rate hikes could end soon.

The Fed decided not to change interest rates at the last Federal Open Market Committee (FOMC) meeting on November 1.

The latest indicators show that economic activity grew at a rapid pace in the third quarter. Employment growth has been moderate since the beginning of the year but remains strong and the unemployment rate remains low. As stated in the accompanying press release, inflation remains elevated.

The American banking system is healthy and resilient. Tighter financial and credit conditions for households and businesses are likely to have an impact on economic activity, employment and inflation. The extent of these effects remains uncertain. The Committee remains very vigilant about inflation risks.

As Cointelegraph reported, $35,000 has quickly become a key BTC price support level for market participants to maintain once it is reached. Meanwhile, the area above $34,500 has been described as an ideal target for a local low.

#Bitcoin will break out and reach a new yearly high.

This is not a massive breakout, but if we stay above 34.8 thousand dollars, the next target will be 36.5-37 thousand. dollars.#Altcoins follow. pic.twitter.com/3aCKwvoGXq

— Michal van de Poppe (@CryptoMichNL) November 1, 2023

However, Bitcoin is currently down more than $1,000 from its highs, but some are concerned, with particular emphasis on derivatives markets.

All Bitcoin derivatives markets are currently overheated, Charles Edwards, founder of quantitative Bitcoin and digital asset fund Capriole Investments, he wrote on X along with Caprioles’ own data.

This includes Perps, Futures and Options. Stay safe out there.

In reaction to this, popular trader Skew agreed, arguing that it is now the spot markets that are responsible for rescuing BTC’s price strength.

There is something to keep in mind when determining your current position, he he said X subscribers.

As derivatives become more popular, more and more emphasis is placed on the spot market to support current prices and trend.

Analysis warns of ‘liquidity problems’

In its own analysis, the resource material metrics monitoring company also stated that caution should be exercised regarding the current Bitcoin trading environment.

Related:4 Signs Bitcoin Is Starting Another Bull Run

Providing a snapshot of BTC/USDT order book liquidity for the largest global exchange Binance, he warned that support levels tend to quickly fade away as the rug is pulled out.

Newcomer liquidity support was at both $34,000 and $33,500 at the time of writing.

#FireCharts to introduce #BTC liquidity moves through the order book again.

When fluidity blocks move in this way, caution is warranted, as these types of movements often result in carpet tugging.

You can reduce your risk of losing stamina by waiting for shopping to resume pic.twitter.com/UCFNpiIoUe

— Material Indicators (@MI_Algos) November 2, 2023

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.