Bitcoin Might See 'Flash Crash,' Says Glen Goodman

Summary

The video script discusses the recent parabolic price surge of Bitcoin, warning signs of an impending correction, and the role of leverage in the system. The speaker highlights the high funding rates for borrowing to trade Bitcoin on exchanges like Binance, indicating excessive speculation. Although a short-term surge above all-time highs is possible, a flash crash is expected to shake out speculative traders. The speaker contrasts the current leverage with 2021, emphasizing it's a short-term phenomenon. While institutional money has increased, retail traders haven't returned yet, but the Bitcoin price hike may attract new retail interest, potentially driving prices higher in the long run.

Takeaways

• 🔺 The price of Bitcoin has seen a recent parabolic rise, which historically precedes a major correction.
• 💰 Traders are paying extremely high interest rates (around 100% per year) to borrow money for Bitcoin trading on major exchanges like Binance, indicating high leverage in the system.
• ⚠️ High futures funding rates have historically been a warning sign of an impending significant price correction or 'flash crash' for Bitcoin.
• ⤴️ The speaker expects another surge in Bitcoin's price to surpass its all-time high before a potential flash crash occurs in the near future.
• ⚡ Unlike the 2021 crash, the current high leverage is a short-term phenomenon and can be flushed out quickly through a flash crash.
• 📈 More institutional money has entered the Bitcoin market through ETFs, but retail trader participation remains low compared to the pandemic period.
• 👥 News of Bitcoin reaching new all-time highs is expected to attract increased retail interest and potentially drive prices higher in the long run.
• 🔄 The speaker believes the current high leverage is a short-term issue and can be resolved quickly through a flash crash, allowing for a more sustainable upward price movement.
• 🏦 While institutional money has increased, the return of retail traders has not yet occurred, unlike the pandemic period.
• 💥 The potential flash crash is expected to flush out highly leveraged futures traders, allowing for a more sustainable upward price movement.

Q & A

What is the current trend of Bitcoin's price mentioned in the script?

According to the script, the price of Bitcoin has gone parabolic recently, which typically indicates an unsustainable rise followed by a correction.

What is the main warning sign mentioned regarding Bitcoin's price?

The main warning sign mentioned is the high Bitcoin futures funding rates, where traders are paying around 100% interest per year to borrow money to trade Bitcoin in the billions of dollars.

What has historically happened when Bitcoin futures funding rates are at elevated levels?

Historically, when Bitcoin futures funding rates have been at very high levels, it has led to a big correction or a flash crash in the price of Bitcoin.

What is the short-term outlook for Bitcoin's price mentioned in the script?

The short-term outlook mentioned in the script is that Bitcoin's price may see another surge to resolutely exceed the all-time high, but a big flash crash is expected in the not-too-distant future.

How does the current leverage in the Bitcoin market compare to the situation in 2021?

The script mentions that the current leverage is a short-term phenomenon and could be washed out within a day, unlike the situation in 2021, which involved more sustained leverage and led to bankruptcy for many companies.

What is the difference in terms of retail trader involvement compared to the previous Bitcoin price surge?

During the previous price surge, there was a significant influx of retail traders, often ordinary people trading from home during the pandemic. However, the script mentions that retail traders have not returned yet in the current price surge.

What is expected to drive Bitcoin's price higher in the longer term?

According to the script, headlines about Bitcoin reaching new all-time highs are expected to attract a lot of new retail interest in the coming weeks and months, which will likely push the price higher in the longer term.

What role do institutional investors play in the current Bitcoin market?

The script mentions that there is now more institutional money involved in the Bitcoin market thanks to the introduction of Bitcoin ETFs (Exchange-Traded Funds).

How does the potential for a flash crash differ from the situation in 2021?

The script suggests that a potential flash crash in the current market would be a short-term event to remove leveraged futures traders and allow for more sustainable price movements, unlike the prolonged leverage-induced volatility in 2021.

What is the overall sentiment expressed in the script regarding Bitcoin's price movement?

The overall sentiment expressed in the script is one of caution, warning about the potential for a sharp correction or flash crash due to high leverage and unsustainable price movements, while also acknowledging the potential for longer-term price appreciation driven by renewed retail interest.

Outlines

00:00

⚠️ Warning Signs of a Bitcoin Price Correction

The recent parabolic rise in Bitcoin's price is a potential warning sign of an impending correction or crash. High futures funding rates, where traders are paying over 100% interest to borrow for trading Bitcoin, historically indicate an imminent big correction. Although a further surge to surpass the all-time high is possible in the short term, a significant flash crash to flush out overleveraged futures traders is likely in the near future. This pattern differs from the prolonged 2021 bear market, as the current leverage is short-term and can be resolved quickly.

🏦 Institutional Adoption vs. Retail Interest

The current Bitcoin market dynamic is distinct from 2021, with increased institutional adoption through Bitcoin ETFs but a lack of retail trader participation. During the pandemic, Bitcoin trading gained widespread popularity among ordinary people stuck at home. However, this retail interest has not yet returned. As Bitcoin hits new all-time highs, media coverage is expected to attract renewed retail interest in the coming weeks and months, potentially driving prices higher in the longer term.

Keywords

💡Parabolic

Parabolic refers to a rapid and unsustainable rise in the price of an asset, often associated with speculative frenzy. In the context of this video, the speaker suggests that Bitcoin's price has been increasing at an exponential rate recently, which is considered an unsustainable trajectory. The script states: "Obviously the price has gone parabolic recently...".

💡Bitcoin Futures Funding Rates

Bitcoin futures funding rates refer to the cost of holding a long or short position in Bitcoin futures contracts. High funding rates indicate a significant imbalance between long and short positions, with traders paying high premiums to maintain their positions. The speaker cites the elevated funding rates on exchanges like Binance as a warning sign, stating: "...people are now paying around about 100% interest per year to borrow money to trade Bitcoin, and they're doing that in the billions of dollars.".

💡Correction

A correction is a temporary and relatively short-term decline in the price of an asset after a significant upward movement. The speaker suggests that Bitcoin's recent parabolic rise is likely to be followed by a correction, stating: "Whenever that has happened historically, we tend to get a big correction." He also mentions the ongoing correction from $69,000 to $65,000 at the time of speaking.

💡Flash Crash

A flash crash is a sudden, dramatic, and often short-lived decline in the price of an asset. The speaker anticipates a potential "big flash crash" for Bitcoin in the near future, driven by the high levels of leverage and speculation in the market. Flash crashes are typically triggered by market events or conditions that lead to a rapid sell-off, exacerbated by algorithmic trading and leverage.

💡Leverage

Leverage refers to the use of borrowed capital or derivatives to amplify the potential returns (or losses) from an investment. The speaker discusses the high levels of leverage in the Bitcoin market, with traders borrowing money to trade Bitcoin futures. Excessive leverage can lead to increased market volatility and systemic risks if traders are forced to liquidate positions during market downturns.

💡Institutional Money

Institutional money refers to the capital invested by large financial institutions, such as banks, hedge funds, and pension funds. The speaker notes the increased presence of institutional money in the Bitcoin market, facilitated by the introduction of Bitcoin ETFs. This institutional involvement is seen as a positive development, providing greater stability and legitimacy to the market.

💡Retail Traders

Retail traders are individual investors who trade securities or other assets for their personal accounts rather than on behalf of an institution. The speaker contrasts the current lack of retail trader involvement in the Bitcoin market with the surge of retail participation during the COVID-19 pandemic, when many individuals were trading from home. The potential return of retail traders is anticipated to further drive demand and push prices higher.

💡All-time High

An all-time high refers to the highest price level an asset has ever reached. The speaker mentions that Bitcoin reaching a new all-time high is likely to attract renewed retail interest in the coming weeks and months, potentially driving prices even higher. Achieving new all-time highs is often seen as a psychological milestone that can fuel further momentum and speculation.

💡Sustainable

In the context of asset prices, sustainable refers to a rate of growth or level of valuation that can be maintained over an extended period without experiencing a significant correction or crash. The speaker suggests that the current parabolic rise in Bitcoin's price may not be sustainable and could lead to a "flash crash" to allow for a more sustainable upward movement.

💡Pandemic

The pandemic refers to the COVID-19 global health crisis that began in late 2019 and had widespread social and economic impacts. The speaker mentions that during the pandemic, when many people were staying at home, there was a surge in retail traders participating in the Bitcoin market. This increased retail involvement contributed to the market dynamics and price movements at the time.

Highlights

Bitcoin's price has gone parabolic recently, which historically signals an impending correction or crash.

A key indicator to watch is the high bitcoin futures funding rates, where traders are paying around 100% interest per year to borrow money to trade Bitcoin.

Historically, when funding rates have been this high, it has led to a big correction in Bitcoin's price.

A correction from $69,000 to $65,000 has already occurred, but funding rates remain elevated, suggesting another surge before a potential crash.

The current leverage in the system is different from 2021, as it is short-term leverage that could be washed out within a day through a flash crash.

A flash crash could reset the system and allow for a more sustainable upward movement.

Institutional money has increased due to Bitcoin ETFs, but retail traders have not returned in full force yet.

News of Bitcoin reaching new all-time highs is expected to attract more retail interest, potentially pushing prices higher in the longer term.

Transcripts

Obviously the price has gone parabolic recently and it doesn't take a genius to

work out what usually happens after the price of Bitcoin or indeed any other

asset goes parabolic. But there are lots of warning signs.

For example, I think the main thing to look out really is the bitcoin feud, the

BTC futures funding rates. If you look at big exchanges like

Binance, you'll see that people are now paying around about 100% interest per

year to borrow money to trade Bitcoin, and they're doing that in the billions

of dollars. Whenever that has happened historically,

we tend to get a big correction. Now, already, as you know, as we're

speaking, we've seen a correction already from 69,000 down to 65,000

already today. I've been watching those funding rates

to see if they're adjusting. They have come down ever so slightly,

but they're still at very elevated levels.

So I would say my short term outlook is that perhaps we get another big surge to

take us resolutely above that above the all time high.

But at some point in the not too distant future, I think we're going to see one

of them big flash crashes at the very least.

Gwen, how do you think about the nature of leverage in the system now as opposed

to when you saw it last time around that really drove many companies into

bankruptcy? Do you think that the leverage that is

built into the system now is unsustainable?

Now it's completely different. This is just a short term leverage

thing. As I say, you could wash it out within a

day quite easily. You know, that's why I said a flash

crash, because it needn't last for weeks.

It could be a really big one just to get rid of those those futures traders and

allow us to have a more sustainable upward movement.

It's nothing like the type of 2021 big difference.

Yes, we have got a lot more institutional money now thanks to those

Bitcoin ETFs. But what we don't have is the return of

the retail traders. You remember it was during the pandemic,

everybody was at home trading Bitcoin. All the well, the ordinary people, the

ordinary people have gone and they have not returned yet.

But now of course we have the big headline, Bitcoin reaches all time high

and that in itself is bound to attract a lot of new retail interest in the coming

weeks and months, which will probably in the longer term push the price higher.