A bearish perspective on the Bitcoin chart shows that it has fallen to lower levels than its all-time high of $69,000.
Bitcoin/USD on the FTX. Source: TradingView
Curiously, the Nov. 10, price peak occurred right as the United States announced inflation had reached a 30-year high. However, the mood quickly changed after worries about Evergrande, a Chinese real estate developer, defaulting on its loans. It appears that this has had an impact on the markets overall structure.
Stablecoin regulation is still a concern for traders
The initial corrective phase was swiftly followed by constant pressure from regulators on stablecoin issuers. On Nov. 12, VanEcks spot Bitcoin ETF rejection was issued by the U.S. Securities and Exchange Commission. This was due to concerns about Bitcoins price manipulation and the view that Tether (USDT) stablecoin wasnt solvent.
The U.S. Banking, Housing and Urban Affairs Committee hosted a hearing on December 14th. It focused on consumer protection and the risks associated with stablecoins. On Dec 17th, the U.S. Financial Stability Oversight Council expressed concern about stablecoin adoption and other assets. The report stated that the Council recommended that federal and state regulators examine available regulations and tools that could apply to digital assets.
CMEs Bitcoin futures contract premium reflected the worsening mood of investors. This metric measures the difference in spot prices in regular markets between futures contracts and longer-term ones.
This indicator should be considered a red flag if it becomes negative or fades. This is known as “backwardation” and it indicates that there is bearish sentiment.
Bitcoin CME 2-month forward contracts premium over Coinbase/USD Source: TradingView
Fixed-month contracts trade at a slight premium. This indicates that sellers are asking for more money to hold settlement for longer periods of time. In healthy markets, futures should trade at a 0.5% – 2% annualized premium. This is known as contango.
The indicator fell below the neutral range on Dec. 9, when Bitcoin was trading below $49,000. This indicates that institutional traders lack confidence, but it is not yet a bearish structure.
Top traders are increasing bullish bets
The long-to-short net position of traders is highlighted by exchange-provided data. It is possible to determine whether professional traders are bullish or bearish by analyzing the position of every client on spot, perpetual, and futures contracts.
Sometimes there are discrepancies between the exchanges methodologies. Therefore, viewers should be able to monitor these changes and not just absolute numbers.
Top traders in Bitcoin short-to-long ratio at exchanges Source: Coinglass.com
Top traders at Binance and Huobi have increased their leverage longs despite Bitcoins 19% correction from Dec. 3. Binance was the only major exchange to see a slight decrease in the long-to-short ratio of top traders. This number increased from 1.09 to 1.03. This was compensated for by OKEx traders raising their bullish bets to 1.51 and 2.91 within two weeks.
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CME 2 month futures contracts are not at premium. Bitcoin is testing $46,000 resistance right now, which is its lowest daily close since Oct. 1. Top traders on derivatives exchanges have also increased their longs despite the drop in Bitcoins price.
Although regulatory pressure wont ease in the near term, the U.S. government has limited options to stop stablecoin transactions and issuance. These companies have the option to move out of the United States and use dollar-denominated assets and bonds instead of cash. Pro traders are also buying the dip, data shows.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.