Here's what could happen if bitcoin breaks below $60,000

Bitcoin is Jean-David Péquignot's focus as chief commercial officer at Deribit. Péquignot warned that the cryptocurrency's price is approaching a critical threshold of $60,000, a level that could trigger a wave of selling and accelerate the current downturn. With bitcoin trading at $61,875.23, the largest cryptocurrency is facing significant headwinds, including record ETF outflows and a rotation of capital into other assets, such as AI stocks.

Péquignot emphasized that the $60,000 level is not just a psychological barrier but a structural threshold with real consequences for institutions and derivatives market participants. A significant chunk of institutional money, comprising ETF buyers, large holders, and short-term speculators, bought bitcoin at prices between $60,000 and $67,000 over the past year. As the price drops, these buyers are sitting at or near their cost basis, essentially at break-even. If prices fall further, unrealized losses will mount, and holding becomes expensive, especially when compared to the surging AI equity sector.

Michael Saylor, executive chairman of Strategy, the largest publicly traded bitcoin holder, also blamed capital rotation for recent BTC losses. Saylor's comments highlight the complex interplay between bitcoin and other assets, as investors rotate their capital in search of better returns. As the opportunity cost of holding BTC rises, investors may be incentivized to sell, leading to a chaotic selloff.

On Deribit, there is over $1.2 billion in notional open interest sitting at the $60,000 strike put options, which pay out if prices fall below that level. Investors have bought these options as a hedge against a protracted selloff. However, market makers, who are on the opposite side of the investors, are now short puts, or "short gamma." As BTC nears $60,000, market makers and dealers will be forced to sell spot BTC or futures to balance their books, accelerating the selloff.

Péquignot warned that the combination of leveraged longs and market makers' hedging activities could turn an orderly decline into a chaotic one. With leverage still not fully flushed from the system, a break below $60,000 could lead to more liquidations, adding to downside momentum. The recent liquidation of billions of dollars of leveraged longs has already contributed to the current downturn, and a further break could trigger a cascading wave of automated long liquidations.

The implications of a break below $60,000 are far-reaching, with potential consequences for the entire cryptocurrency market. As institutional buyers face unrealized losses, they may be forced to reevaluate their investment strategies, leading to a potential shift in market sentiment. The rotation of capital into other assets, such as AI stocks, could also have a lasting impact on the cryptocurrency market, as investors seek better returns in other sectors.

In conclusion, the $60,000 threshold is a critical level for bitcoin, with significant implications for institutional buyers, market makers, and the entire cryptocurrency market. As the price approaches this level, investors are bracing for a potential chaotic selloff, with far-reaching consequences for the market. The coming days will be crucial in determining the direction of bitcoin, as investors weigh their options and consider the potential risks and rewards of holding the cryptocurrency.