Discussing the stop loss strategy, he indicated that Matrixport, a crypto services provider overseeing assets worth over $3 billion, has adopted a cautiously optimistic stance on bitcoin (BTC) following its decline in August. Markus Thielen, head of research and strategy at Matrixport, emphasized the importance of vigilance among traders to watch for a potential decline below the $25,800 threshold. The company’s strategy involves seizing the recent price dip in bitcoin through a closely monitored stop loss.
After a notable 10% drop in BTC on August 15, a test of the former resistance-now-support level at $25,000 occurred. Subsequently, bitcoin’s value hovered around $26,000, leading many traders to anticipate ongoing losses in the upcoming weeks.
Contrary to this sentiment, Matrixport’s Markus Thielen, the head of research and strategy, expressed a different viewpoint. He noted that employing stringent stop loss measures would position Matrixport in a long bitcoin position, anticipating a rise in U.S. tech stocks alongside decreased treasury yields. Thielen remarked in the recent market update on Tuesday that they had anticipated a 10% correction by the conclusion of the summer, a prediction that was realized. He encouraged traders to adopt an appropriate risk management approach, thereby enabling them to consider going long again.
Thielen advised traders to keep a close watch on bitcoin’s price, particularly if it falls below $25,800, as this would activate the stop loss mechanism for the long position. At the time of writing, bitcoin was valued at $26,000, signifying an approximately 11% decrease in value for the month.
A stop loss functions as a predetermined buy or sell order, designed to mitigate potential losses stemming from unfavorable price movements in a trade.
Potential Boost for Bitcoin as Market Makers Emerge
Market makers establish liquidity in the order book and consistently take the opposing position to investors. They generate profits from the difference between the bid and ask prices, ensuring a balanced portfolio by continually purchasing and selling the underlying asset.
Markus Thielen explains that in the event of a potential surge in bitcoin’s value, market makers are likely to purchase bitcoin in order to uphold a balanced trading position. This action has the potential to expedite upward price movements.
Thielen points out that derivatives data reveals a significant concentration of call options within the 30,000 to 35,000 price range. If a modest price rally begins, the option gamma effect could trigger an intense upward movement back to the 30,000 level. This phenomenon is driven by market makers needing to acquire bitcoin to hedge their positions. Thielen clarifies that while not equivalent to a short squeeze, even a small impetus can initiate a rally.