Quantitative institutions discuss market plunge, Alameda Research: Market overreacts to bearish news, already long

Whenever the market crashes, Alameda Research always releases their insights on the market. This time, they believe that the market has overreacted to recent bearish news, and Alameda has chosen to go long.

Alameda Research researcher Sam Trabucco described it as an analysis on distinguishing between calm and storm.

Word on the street is: this price graph is fucked up. What happened?

A thread about the calm, the storm, and how to tell the difference. pic.twitter.com/QDl3nt1xtj

— Sam Trabucco (@AlamedaTrabucco) June 23, 2021

Recent Bearish Factors

• Chinese regulatory crackdown, possible follow-up from the United States?
• Bitcoin's environmental impact, at least according to Musk
• With the collapse, institutions may need to offload? Such as MicroStrategy

This list is not specific. Trabucco believes that investors always amplify the news they want to see and hesitate between news they don't want to face, so it is necessary to analyze which news is true.

News-Driven Trends, Market Overreactions

Trabucco divides the two-week Bitcoin trend into four periods and believes that different categories of news dominate price trends in different periods, for example:

June 9 to 11: El Salvador / Tesla bearish reversal
June 11 to 13: China, U.S. FUD / reversal
June 13 to 15: MicroStrategy buys again / reversal
June 15 to 23: China FUD, MicroStrategy in trouble? / reversal

Trabucco points out that the above news causes market overreactions, and he believes that these news do not actually have any impact on the value of Bitcoin. The public should not measure the short-term price of Bitcoin based on this, which is also why he describes the market's reaction as "reversal."

Is It Really Bearish?

Trabucco interprets these news from his perspective :

• Can you point out where El Salvador is on the map?
• This time, Chinese regulation is "a bit different," but China has always had FUD, and we know China will do "certain things."
• Elizabeth Warren, a U.S. Republican congressman, is far from regulating cryptocurrency
• Michael Saylor, CEO of MicroStrategy, is not done

Similar things continue to happen. Previously, Musk's tweets would cause Bitcoin to rise by 10%, then drop by 9%, and after Musk promised "Tesla will resume Bitcoin payments if 50% of mining is green energy," Bitcoin once again approached $40,000.

Market Liquidation

Trabucco notes that news citing bearish or bullish data often like to use the amount of market liquidation as a basis, but in reality, on days when funds show net inflows, it is the shorts that are being liquidated, and vice versa, providing good material for bearish news.

Whether it is bullish "net inflow" or bearish "net outflow," it also represents the intentions of the trading counterparties, that is, not everyone is looking in the same direction at the same time.

And when investors happen to overreact to the news, liquidation intensifies.

Some Closing Positions, Not All Liquidated

Trabucco further quotes the average funding rate of Binance perpetual contracts. He points out that during the decline, a large amount of funds are supporting the generally "invisible" long positions, and during this period, the open interest contracts are shrinking, not all of them are being liquidated.

No One Wants to Sell at Thirty Thousand

Trabucco emphasizes at the end of the article that the liquidation volume on 6/22 and 6/23 reached recent highs. But with the surge in liquidation volume, this often helps trend reversals because no one wants to sell at thirty thousand, and buying in this range can really be anticipated as a great trade.

He also adds that buying during this decline is considered a great trade, and reveals that Alameda Research has established a batch of new long positions.