Bitcoin (BTC), despite its struggles to break the $47,000 resistance, is showing signs of health despite the drop below $44,000 on April 6.
Bitcoin began a 25.6% correction on December 3, 2021 that lasted 18 hours, culminating in a $42,360 high. Four months later, the price was still 18% lower than the $56,650 closing on December 2, 2021.
Many things have changed in that time period. Hard evidence is available from other sectors of the sector. MicroStrategy, an enterprise software development company, announced the acquisitions of 4,197 Bitcoin between February 15th and April 2nd 2022.
According to Glassnode data, the inflows into Canadian Bitcoin exchange-traded funds has also reached an all-time high. These Canadian investment vehicles have seen their holdings rise by 6,594 BTC in the past year to reach a historic high of 69.052 BTC. The Purpose bitcoin ETF, which is a spot instrument, currently holds $1.68 billion in assets.
Terra’s Luna Foundation Guard, which has been buying BTC since the beginning of this year, is one of the most recent buyers. It is currently on a mission for $3 billion to purchase BTC in order to reserve TerraUSD (UST), a stablecoin.
CoinMetrics data showed that the active on-year Bitcoin supply was at 36.8% as of April 5. This is its lowest level since September 2010.
Bitcoin in trailing 1 year active supply Source: CoinMetrics
This chart shows how many “diamond-hand” holders haven’t moved their coins in the last 12 months.
Futures market traders feel uncomfortable at $47,000
Let’s take a look at Bitcoin’s options and futures market data to see how professional traders position themselves, including whales, market makers and market makers. Basis indicators measure the difference between current spot market levels and longer-term futures contracts.
To compensate traders who “lock in” the money for the two- to three month period leading up to the contract expiry, the annualized Bitcoin futures premium should be between 5% and 12%. Low levels below 5% indicate extreme bearishness, and high numbers above 12% are bullish.
Annualized premium for Bitcoin 3-month futures. Source: Laevitas.ch
This chart shows that the metric fell below 5% on February 11, reflecting traders’ insatiable demand for leverage long (bull), positions. After the basis rate returned to the neutral 5% threshold, sentiment changed on March 26. According to the futures premium, even though this happened, there are still no signs of confidence from traders.
Option traders are worried about the downside risk
Bitcoin does not seem to have the strength to break the $47,000 resistance at the moment. However, traders should use derivatives in order to gauge professional investor sentiment. The 25% delta skew indicates that arbitrage desks or market makers charge too much for downside protection.
The skew indicator will rise above 10% if these traders are worried about a Bitcoin price crash. Generalized excitement, on the other hand, reflects a negative 10% Skew.
Bitcoin 30-day options 25% delta-skew: Source: Laevitas.ch
Data indicates that the skew indicator fluctuated between 0% to 8% since March 9. These options traders are charging too much for protection against downside risk, even though they are not expressing fear. The risk of unexpected price swings downward is slightly higher from the perspective of BTC options markets.
Bulls have an opportunity with the neutral-to-bearish Bitcoin derivatives data. Investors will be surprised if the $47,000 resistance breaks. There will be two positive outcomes from this event: a temporary squeeze on derivatives markets and the possibility for buyers to leverage futures.
If Bitcoin’s futures premium was higher than 10%, traders would have to pay more to add long (bullish) positions. The sound market structure, which is free from exaggerated buyers leverage, makes it easier for bulls to handle the $47,000 price resistance. This increases their chances of success.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.