Bitcoin Price Overview After Worst Day Since May: The Good And The Bad

Bitcoin has had its worst day since mid-May, yesterday’s high of $ 53.8,000 while the low was below $ 42,000. Given that Bitcoin is currently 30% below the ATH recorded on November 10th, the analysis below will attempt to see if the bull market is over and the next strong support zone if $ 42,000 is breached.

market Futures

One of the main reasons for yesterday’s sharp decline was the high volatility in the cryptocurrency futures market. Open Interest (OI) has plummeted ~ $ 3.7 billion in the last 8 hours.

Technical analysis

Let’s take a look at the Heikin-Ashi candlestick chart on the Bitcoin weekly timeframe using the Bollinger Band indicator. BTC signaled a correction after hitting the upper band at USD 69,000 (ATH level created on November 10th).

Currently, Bitcoin has found support in the middle band of the indicator, which is also the 20-week SMA. If Bitcoin loses support from the middle band, it will likely fall into the lower band of the indicator, which is currently at $ 34,000.

On-chain analysis: buy / sell spread

The majority of bitcoins sold in the past seven days (~ 77%) were last moved (possibly bought) above the $ 60,000 price range. Hence, those who sell with little loss are selling.

In light of the above, consider the UTXO chart which shows the supply distribution based on the purchase price (last move).

If we look at the following chart, we can identify some levels of support for BTC if the price continues to fall. $ 46.2,000 (near the 200-day SMA) and $ 40,000 are the key supports based on the UTXO chart.

Options market: buy / sell open interest (OI) prices and implied volatility

A call option is the right to buy in the future at a set price while a put option is the opposite.

When traders buy more put than call, it indicates a rise in bearish sentiment. The Put Call Ratio (PCR), which measures the buy / sell ratio, is an indicator of derivatives in the options market that can be used to understand market sentiment.

The graphic below shows this relationship through the lens of Open Interest (OI). We can combine this ratio with the implied volatility (IV) for better results.

Implied volatility is the key figure that can be extracted from option prices. Whenever traders perceive the increased risk of larger price fluctuations, the indicator moves upwards. The opposite happens in phases with sideways prices or slight fluctuations in price expectations.

The data shows that the PCR increased from 0.43 to 0.53 in the last month, which means more put trades than calls. IV also increases like PCR: this shows that whenever the PCR increases with the increase in IV, the put (put) increases. This short-term bearish signal once caused the price to drop from $ 69,000 to $ 53,4,000.

These options traders want to protect their portfolio against a bitcoin decline due to other news like the rejection of VanEck’s physical Bitcoin ETF & the new Omicron variant. Bitcoin price fell about 8% immediately after the WHO warned of a new variant of Covid-19.

The question is, do options traders decide this is the top of the market? To get it clear:

First, we can compare the PCR in Deribit at ATH ($ 69,000) which was 0.46 and the PCR at the previous ATH ($ 64,000) which was 0.98. As the graph shows, this indicator is at a low, implying a further rise in BTC.

Second, if you look at the open interest, there are more call trades (green) than put trades (red) after the crash in May 2021.

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