Alameda Research: Bitcoin market overreacted and has chosen to go long

Note: The original author is Sam Trabucco, head of trading at Alameda Research.

There is a popular saying in the market now: The price trend chart has gone bad, what happened?

This is a post about how to tell the difference between the calm and the storm.

There are a few popular sayings recently:

1. Chinese FUD is driving down prices, so might the US follow?

2. Bitcoin is bad for the environment, or at least that’s what Musk thinks.

3. Perhaps with this drop, some institutions with exposure to crypto assets will get into trouble and need to sell? (e.g. Saylor, etc.)

However, none of this is realistic, and people oscillate between exaggerating the news they want to hear and underestimating the news they don’t want to hear. So let’s break it down and see what is realistic.

I’m going to start by saying something that might sound stupid, but hear me out. This price chart below is a 2-week chart, but it can actually be broken down into four different sections, as shown below:

Things like this are how I make the big money.

No, obviously I’m being facetious, but it’s worth highlighting that Bitcoin’s price has been holding strong momentum in the first few days of the timeframe. Why?

I think different types of news dominate price action in each period.

1. June 9-11: El Salvador news release pushes BTC price higher / Musk’s influence downplayed

2. June 11-13: China/US FUD/Market Reversal

3. June 13-15: Saylor buys or other reasons/market reversal

4. June 15-23: China FUD/“Is Saylor done?”/Market reversal

I think each of these constitutes an overreaction - which is why I include "reversal" as an effect of all of them, as I think it's likely that none of them will have an impact on BTC's "value" or what people should be pricing in it in the medium term.

Can you tell me where El Salvador is on the map?

This China FUD is new, but China has always had FUD, and we knew China would do something.

Warren is still a long way from regulating crypto assets.

Saylor wasn't done either.

This happens all the time — remember when Musk tweeted and BTC surged 10% and then dropped 9% in a matter of hours?

So what's really happening is: people overreact to the news, liquidations exacerbate that overreaction, and when people realize that (when another piece of news tells them), they trade the other way.

It’s the same old story!

The week-long crash we just witnessed (dropping below $30k earlier today) is worth highlighting because there is some strange behavior here.

Specifically, let’s look at the BTC perpetual contract situation. Below is the average funding rate on Binance.

Binance’s BTC perpetual contracts are usually very important, as we can see, during this period, a lot of funds are paying for “longs” that we don’t usually see, and during this period, OI is “shrinking”, not “all” from liquidations.

This suggests that longs were unwinding their positions one way or another – yes, some were liquidated, but some simply chose to unwind their positions.

The situation on FTX is similar - with a sharp drop in OI net value, more funding -> longs, all major perpetual contract exchanges such as Bybit, OKEx, etc. have similar patterns, which suggest the same thing - people have chosen to close their positions for whatever reason and are actively selling.

Additionally, yesterday/today's net liquidations were the most of any day in recent memory - as we've discussed, surges in liquidations often help fuel reversals, as no one wants to sell at $30k, really. As usual, buying at this level is a predictably good trade.

In fact, trading at the end of any of these periods is a predictably good trade - the goal is to find it.

Does today seem to mark yet another paradigm shift? We can only wait and see – and Alameda’s new long position hopes so too.