Despite the Bitcoin (BTC) price trading below its 2023 peak, the dream of breaching the $50,000 mark is far from over. The resilience of the $44,000 resistance level might have been underestimated by investors, but the current trading price below $42,000 does not necessarily signify an impossibility of reaching and surpassing $50,000. Interestingly, the Bitcoin derivatives data suggests that traders maintain their optimism despite a 6.9% drop. But does this optimism translate into potential for further gains?
Understanding the Role of Derivatives
On December 11, the liquidation of leveraged long Bitcoin futures amounted to $127 million. While this figure might seem considerable in isolation, it accounts for less than 1% of the total open interest, which represents the value of all outstanding contracts. This liquidation event triggered a 7% correction in under 20 minutes, leading some to argue that derivatives markets played a pivotal role in this negative price movement. However, this perspective overlooks the subsequent recovery, with Bitcoin’s price increasing by 4.2% within six hours of hitting a low of $40,200 on the same day. This suggests that the impact of the forceful liquidation orders had long since dissipated, challenging the notion of a crash solely driven by futures markets.
Interpreting Bitcoin Futures Premium
To gauge whether Bitcoin whales and market makers remain bullish, it’s essential to examine the Bitcoin futures premium, also known as the basis rate. Professional traders often favor monthly contracts due to their fixed funding rate. In neutral markets, these instruments typically trade at a premium of 5% to 10% to account for their extended settlement period. Despite a 9% intraday price drop on December 11, the BTC futures premium remained above the 10% neutral-to-bullish threshold, suggesting no significant excess demand for shorts.
Analysing Options Markets
Options markets also provide valuable insights into investor optimism. The 25% delta skew is a useful indicator of whether arbitrage desks and market makers are charging excessively for upside or downside protection. A skew metric above 7% indicates an expectation of a Bitcoin price drop, while periods of excitement often result in a negative 7% skew. Since December 5, the BTC options skew has remained neutral, indicating a balanced cost for both call (buy) and put (sell) options. This suggests resilience following the 6.1% correction since December 10.
Assessing the impact of retail traders using leverage on price action is also crucial. Perpetual contracts, also known as inverse swaps, include an embedded rate that is typically recalculated every eight hours. Data reveals a modest increase between December 8 and December 10 to 0.045%, equivalent to 0.9% per week, which is not significant or burdensome for most traders to maintain their positions.
Such data is encouraging, given that Bitcoin’s price has surged by 52% since October. It suggests that the rally and subsequent liquidations were not driven by excessive retail leverage longs. The primary driver appears to be the spot market, indicating a reduced risk of cascading liquidations due to excessive optimism tied to the expectation of a spot exchange-traded fund (ETF) approval. This is positive news for Bitcoin bulls, as derivatives data suggests that positive momentum remains despite the price correction.
With platforms like cryptoview.io, you can keep track of these complex market movements and make informed decisions. Remember, every investment and trading move involves risk, and it is crucial to conduct thorough research before making a decision.
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