2 key Bitcoin trading metrics suggest BTC price has bottomed

Bitcoin (BTC), which lost $840 million in leveraged long-term futures contracts, has struggled to maintain its $47,500 support. Recent data showing that U.S. inflation has reached a 40-year high, and the Omicron version of the Coronavirus, led to the downside move.

Price of Bitcoin/USD at FTX Source: TradingView

Newcomers may have been afraid by the 26% price drop over the last month. However, avid investors such as MicroStrategy and whales added to their positions. MicroStrategy, which announced they had purchased 1,434 Bitcoin on Dec. 9, increased their stake to 122.478 BTC.

Some analysts believe that Bitcoin’s weakness is due to the contagion fear that Evergrande (a prominent Chinese property developer) defaulted on its US dollars debt Dec. 9. Bears could also have been influenced by the $1.1 Bitcoin Billion options expiring Dec. 10, which could have had an impact on Bitcoin’s weakness, as they made a $300 million profit.

Margin traders remain extremely bullish

Margin trading allows investors leverage their positions by borrowing stablecoins, and then using the proceeds to purchase more cryptocurrency. These savvy traders use Bitcoin as collateral to buy shorts.

Analysts monitor the total lending amount of Bitcoin and stablecoins to determine whether investors are bullish or bearish. Bitfinex margin traders had their longs cut slightly before the Dec. 4 price collapse.

Bitfinex BTC margin long/total percent. Source: Coinglass

The indicator had a good 90% favoring longs. This means that stablecoin borrowing was only 10%. The margin longs also recovered 94% in less than 24 hours following the price crash. This indicates that, even though some investors were taken by surprise, the majority of investors remained in their positions throughout the movement.

Option markets can be used to confirm that the movement was unique to the instrument. The 25% delta skew is a comparison of similar call (buy) or put (sell) options. If “fear” is present, the indicator will be positive as the protective put option premium is greater than other risk options.

When market makers are bullish, the opposite is true. The 25% delta skew will shift to the negative. Normally, readings between negative 8 and positive 8 are considered neutral.

Deribit Bitcoin options 25% delta skew. Source: laevitas.ch

The 25% delta skew was close to 6% before the Dec. 4 Bitcoin crash. This is neutral. The indicator peaked at 10% over the next three days, and is currently at 3%.

Both the Bitfinex margin long and options main risk metrics show little signs of stress in derivatives market markets. These markets are used more frequently by professional traders so it is easy to believe that Bitcoin will reach a new record high in 2022.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.