Bear pressure as Bitcoin price returns to CZK 41,000

“Don’t go against the trend” is an old saying in the market, and there are many other variations of the phrase such as “Never catch a falling knife”. The bottom line is that traders shouldn’t try to predict a trend reversal or, worse, try to improve their average price while losing.

It doesn’t matter whether you’re trading soybean futures, silver, stocks, or cryptocurrencies. Markets often move in cycles that can last from a few days to several years. In the case of Bitcoin (BTC), hardly anyone can justify the bullish case by looking at the graph below.

For the past 25 days, all attempts to break the descending channel were abruptly interrupted. Oddly enough, the trend didn’t fall below $ 40,000 until mid-October, which is the final deadline for the US Securities and Exchange Commission to decide on the ProShares Bitcoin ETF (October 18) and the Invesco Bitcoin ETF (October 18, October 19).

According to CoinShares’ weekly report, recent price movements have led institutional investors to enter the sixth straight week of inflows. It raised nearly $ 100 million between September 20 and September 24.

Seasoned traders suspect that Bitcoin will need to regain support at $ 43,600 in order for the upward trend to continue. In the meantime, on-chain data shows a large accumulation as the reduced exchange offer dominates.

Perpetual futures show traders down neutrally

To measure investor sentiment, one should analyze funding rates for perpetual contracts as this is the preferred tool for retailers. In contrast to monthly contracts, perpetual futures (reverse swaps) are traded at a price that is very similar to conventional spot exchanges.

The funding rate is automatically calculated every eight hours from purchase (buyer) when additional leverage is requested. However, when the situation is reversed and short sales (sellers) are overused, the funding rate becomes negative and they become the payers.

A “neutral” situation with long leverage will incur a small fee of between 0% and 0.03% per 8 hour period or 0.6% per week. However, the graph above shows a slight downtrend since September 13th, when the funding rate was last above the 0.03% threshold.

Deal rate favors bulls, but the trend has changed

In contrast to futures, options are divided into two segments. Call (buy) options allow the buyer to buy Bitcoin at a fixed price on the expiration date. Generally they are used in neutral arbitrage or bullish strategies.

In the meantime, put options are widely used to protect against negative price movements.

To understand how these competitive forces are balanced, one should compare call and put options with open interest.

This indicator hit a low of 0.47 on Aug 29, reflecting a stacked 50,000 BTC defense against 104k BTC call (buy) options. However, the gap is still narrowing as the use of neutral to bearish put-through contracts gains traction after the September 24th monthly expiration.

According to the Bitcoin futures and options markets, a so-called “bearish” phase may seem premature, but the past two weeks have shown no signs of upward trends in the derivatives indices. It appears that the hopes of the bulls holding on to the ETF phase-out act as a trigger for a breakout of the current market structure.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement carries risks. You should do your own research when making a decision.