Bitcoin was rejected near $ 58,000, but derivative data shows traders are taking a neutral stance on the upside, leaving enough room for a new all-time high (ATH) in 2021.
Bitcoin has lagged most altcoins in the past two months, but that trend was reversed when a 20% surge pushed its market cap above $ 1 trillion in October and caught investor attention again.
The current positive momentum could jeopardize the Bitcoin price if traders get too confident and abuse leverage to open long positions. To avoid this, traders need to carefully analyze the derivatives market to eliminate this risk.
Top 14 weekly active coins | Source: CoinMarketCap
Note that altcoin market capitalization is up 5.8% while Bitcoin is up 20.8% over the same period, but there are some exceptions like Shiba Inu (SHIB) by 200%, Fantom (FTM) by 60 % and Klaytn (KLAY) is up 36%. However, the aggregation of market capitalization from altcoins does not go hand in hand with the performance of Bitcoin.
Several celebrities have spoken out, including billionaire Wall Street investor Bill Miller, who recently expressed his optimism about Bitcoin while voicing concerns about most of the altcoin projects. He specifically mentioned the involvement of “big banks” and mentioned “large amounts” of venture capital flowing into Bitcoin.
The recent Bitcoin frenzy appears to be driven by the macroeconomic scenario. The United States increased its debt ceiling by $ 480 billion to meet its obligations by early December (December 3, 2021). Inflationary pressures from endless stimulus packages and low interest rates have fueled a sustained rise in commodity prices.
For example, oil reached a seven-year high and wheat on the futures market recently reached record highs that have not been seen since February 2013. The S&P Case-Shiller house price index is also up 23.3% year over year.
To understand whether Bitcoin traders are overexcited, one should analyze Bitcoin derivative indicators such as futures premium and option deviation.
The base rate measures the difference between a long-term futures contract and the current spot market level. This indicator is also commonly known as the futures premium.
Bitcoin 3 Month Futures Base Rate | Source: Laevitas.ch
In healthy markets, an annual premium of 5 to 15% is expected; this situation is known as “contango”. This price difference is caused by the seller asking for more money to postpone payment for a longer period of time.
Bitcoin’s recent 20% rally has caused the indicator to hit the upper bound of this neutral zone, which means that investors are optimistic but not yet too confident. Whenever buyers claim excessive leverage, the base can easily break 25% as seen in mid-May.
In order to exclude external factors specific to futures instruments, one should also analyze the options markets.
A delta deviation of 25% compares similar call and put options. This metric always becomes positive when “fear” prevails, as traders expect a potential downward trend.
The opposite happens when options traders are bullish, which causes the 25% delta deviation indicator to become negative. Values between -8% and + 8% are generally considered neutral.
25% delta deviation of Bitcoin options on Deribit | Source: Laevitas
The graph above shows that there has not been a single case in the past six months where options traders have become overconfident, which could signal “greed” if the delta deviation of 25% falls below -8%. Meanwhile, the indicator has fluctuated near zero for the past week, suggesting a risk of equilibrium between the bears and the bulls.
These results show a lack of trust among buyers, but are rather contradicting. If bitcoin bulls are overconfident at $ 57,000 as early as $ 57,000, there will be little room for additional leverage, increasing the risk of cascading liquidations should a temporary price correction occur.
The bulls are modestly confident and even a 20 percent correction is unlikely to change the situation as the base rate of the futures market shows a reasonable premium after the recent rally.
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