Financial markets are perfect for the expression “hindsight’s 20/20” because every price chart pattern is evident after the movement.
The Feb. 28 pump took Bitcoin (BTC), above $43,000, and traders should have known that there would be resistance. Given that the market has rejected Bitcoin (BTC) at $44,500 in multiple instances, it makes perfect sense to call for a retest of below $40,000, right?
Coinbase – Bitcoin/USD Source: TradingView
This common fallacy is known as “post-hoc”, in which one event is believed to have caused another event simply because it occurred earlier. Analysts and pundits will always call for continuation or rejection following a major price change.
We tend to follow through after strong #Bitcoin rallies, like the one that we saw today. As I mentioned earlier, my optimism in the short-term is based on the sheer disbelief that this rally brought. There are no immediate guarantees for new highs, but there is a possibility of a local uptrend.
— Benjamin Cowen (@intocryptoverse) March 1, 2022
Cointelegraph reported on March 2 that Bitcoin could “force a $34K test.” An “ailing momentum” was cited by the analysis because Russia had just declared its invasion of Ukraine.
The cryptocurrency market’s aggregate market capitalization performance showed a 11.5% decline to $1.76 trillion over the past seven days. This move erased gains made the week before. Large-cap assets such as Bitcoin, Terra (LUNA), and Ether (ETH), were also affected, with nearly 12% of the losses recorded in this period.
Weekly winners and losers from the top-80 coins Source: Nomics
Over the past seven days, only two tokens showed positive performance. WAVES rallied in the second week of the upgrade to Ethereum Virtual Machine (EVM), which was completed. Transition is expected to begin in spring, and the new consensus mechanism will allow for a “smoother switch to Waves 2.0.”
THORChain (RUNE), jumped following completion of its Terra (LUNA), ecosystem integration. This enabled the blockchain to support all Cosmos based projects. ThorChain users now have more trading options and staking options, including TerraUSD(UST) stablecoin.
Positive change in funding rates
The embedded rate for perpetual contracts, also called inverse swaps or inverse futures, is usually charged every eight hours. Because their price closely tracks regular spot market prices, perpetual futures are a preferred derivative for retail traders.
This fee is paid by exchanges to avoid imbalances in exchange risk. Positive funding rates indicate that buyers (longs) require more leverage. The opposite happens when shorts (sellers), require more leverage. Therefore, the funding rate turns negative.
On March 7, the accrued perpetual futures funding rate was 7% Source: Coinglass
You can see that the cumulative seven-day funding rate turned positive in all four coins. Although this data suggests a slightly higher demand from buyers (longs), it is not significant. Bitcoin’s positive weekly rate of 0.10% is 0.4% per month. This is good news for futures traders.
The rate of increase can easily exceed 4.6% per month if there is an excess of optimism.
Options data is pricing during a possible price crash
The market isn’t moving in a clear direction at the moment, but the 25% delta option skew indicates that market makers are willing to overcharge for downside or upside protection.
The skew indicator will rise above 10% if professional traders fear a Bitcoin crash. Generalized excitement, on the other hand, reflects a negative 10% Skew.
Bitcoin 30-day options 25% delta-skew: Source: Laevitas.ch
The skew indicator was 10% up until March 4, but it dropped to 7% or 88% over the course of the week, as shown above. The indicator still shows that pro traders have higher chances of a market crash.
Retail traders’ futures data shows mixed emotions, which indicates a shift away from slightly negative sentiment versus options price makers pricing in a higher chance of another crash.
Some may argue that the fourth failure to break the $44,500 resistance was the final nail in the coffin, as Bitcoin’s strength declined during periods of global macroeconomic uncertainty.
However, crypto’s $1.76 trillion current market capitalization cannot be considered unsuccessful. There is still hope for buyers.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.