Bitcoin price hits $ 32,000 but derivative indicators are still showing signs of weakness
There is no doubt that Bitcoin (BTC) has been in bearish for the past few months, but during this period derivative indicators have been relatively neutral. This is likely because the cryptocurrency has a strong track record in terms of volatility and could even correct 55% from all-time highs.
After two months of fighting for the $ 30,000 support and final loss on July 20, futures and options premiums trended lower. Even PlanB’s flow-through stock pricing model doesn’t expect a price below $ 30,000 for the current month. The model uses a stock-to-flow ratio, which is determined by the current number of bitcoins in circulation and the annual release of newly mined bitcoins.
On-chain data is positive, but derivatives are not
The on-chain analysis shows that a monthly average of 36,000 BTC withdrawn from exchanges is generally interpreted as accumulation. However, this superficial analysis does not take into account the increasing use of cryptographic bitcoin in decentralized financial (DeFi) applications.
The graph above shows that over the past three months, 40,660 BTC has been added to Wrapped Bitcoin (WBTC) and RenBTC (RENBTC). This number does not take into account the deposits at BlockFi, Nexo, Len and many services that make a profit on users’ crypto deposits.
The removal of bitcoins previously deposited on exchanges could be a sign that traders’ short-term sales intentions are waning. At the same time, it can also represent investors who are looking for higher returns in other ways. In short, these coins could have been placed on exchanges as collateral or as a long-term asset.
As mentioned earlier, negative derivatives of indicators will carry more weight than assumptions about bullish or bearish interpretations of on-chain data. Analysts should consider the premium of the futures contract, also known as the basis, in the initial analysis.
This indicator enables investors to understand how bullish or bearish professional traders are as it measures the difference between the monthly futures contract and the current spot market price.
The neutral base rate should be set at 7% to 15% annually. This price difference is caused by the seller asking for more money to defer payment, a situation known as contango.
However, when that premium wears off or goes negative, it is a very bearish scenario known as bearish. On July 20, the indicator held a negative level of 2.5% for more than 12 hours for the first time.
For now, professional traders are likely to fall in price after Bitcoin lost vital support at $ 30,000, but further confirmation could be gained by looking at the options markets.
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Professional traders looking for semi-protective options
Unlike futures contracts, options come in two different instruments. Puts offer buyers upside protection and put is the right to sell Bitcoin at a fixed price in the future. Put options are often used in neutral to bearish strategies.
When the transaction rate rises, it means that the open interest in these bearish neutral contracts is growing and is usually interpreted as a negative signal. The most recent data at 0.66 is still in favor of call options, but these instruments are slowly losing ground.
There is currently enough evidence of a decline in the futures and options markets, and this has not happened in the past two months. This shows that even professional traders are lacking confidence after failing to hold the $ 30,000 support for the past 48 hours.
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 involves risks. You should do your own research when making a decision.