Bitcoin Price Reaches $ 32,000, What Do On-Chain And Derivatives Indicators Say?

Bitcoin price rose nearly ten percent and rebounded to an intraday high of $ 32,752, but derivative data shows professional traders are still concerned.

Source: TradingView

There is no doubt that Bitcoin has fallen in price over the past few months, but during that time derivative indicators have been relatively neutral. This is likely due to the high volatility of cryptocurrencies, with some coins correcting up to 55% against ATH.

After 2 months of struggling to maintain support at $ 30,000 and eventually losing on July 20th, futures premiums and options have trended lower. Even PlanB’s stock-to-flow pricing model, which is determined by the number of bitcoins in circulation and the annual release of newly mined bitcoins, doesn’t predict prices below $ 30,000 in July.

On-chain data is positive, but derivative indicators are not

The on-chain analysis shows that an average of 36,000 BTC is withdrawn from the exchanges every month, which is generally interpreted as accumulation. However, this superficial analysis failed to highlight the increasing use of tokenized Bitcoin in decentralized financial (DeFi) applications.

Total range of RenBTC and Wrapped BTC | Source: Cointrader.pro

The graph above shows that over the past 3 months, 40,660 BTC has been added to Wrapped Bitcoin (WBTC) and RenBTC (RENBTC). This number does not take into account deposits made at BlockFi, Nexo, Len and many other services that offer user crypto deposit returns.

Bitcoin’s withdrawal from exchanges may be a sign that traders are reducing their intent to sell in the short term, while at the same time it can be interpreted that investors are looking for higher returns in other ways. In a nutshell, this BTC likely went public as collateral or long-term inventory.

As mentioned earlier, negative derivatives have a bigger impact on price than on-chain data. In the initial analysis, analysts should consider futures premiums.

This indicator enables investors to see whether professional traders are bullish or bearish as it measures the difference between the monthly futures contract and the current spot market price.

The annual neutral premiums are typically between 7% and 15% and result from a seller asking to postpone payment, a situation known as a deferral.

Huobi 1 Month BTC Futures Premium | Source: Skew

However, when the premium gradually declines or turns negative, it is a very bearish scenario known as procrastination. On July 20, this indicator held the -2.5% level for the first time for more than 12 hours.

Bitcoin futures contracts

The sustained increase in open interest (OI) in Bitcoin futures and the sharp rise in the number of short sellers suggest a gloomy market sentiment, which is likely to result in higher volatility.

Open interest reached its highest level since May 18, according to data from Glassnode, but the value remains unchanged at around $ 12 billion.

Bitcoin Futures Open Interest | Source: Glassnode

Taking all metrics into account, the futures market is sloping sharply down, which opens the door to strong corrective upward moves for Bitcoin price. Often times, when leverage is trending down, an upward movement results in the forced closure of short positions (exchanges that offset short orders), creating upward pressure that leads to excessively high price volatility.

Professional traders are pessimistic for now after Bitcoin lost all-important support at $ 30,000, but could get more confirmation by looking at the options markets.

Professional trader looking for a protective put option

Unlike futures contracts, options contracts have two different instruments. A call option gives the buyer upside protection and a put is the right to sell Bitcoin at a fixed price in the future. Put options are often used in neutral to bearish strategies.

Bitcoin Options Put-to-Call Rate | Source: Cryptorank.io

When the put-to-call ratio increases, it means that the number of open positions in neutral to bearish contracts is increasing and is usually interpreted as a negative signal. The most recent data at 0.66 is still in favor of call options but the instrument is slowly losing its position.

There is currently enough evidence of a bearish situation in the futures and options markets and this has not happened in the past two months. As a result, even professional traders lack confidence after failing to hold the $ 30,000 support for the past 48 hours.

Briefly takes the wave

According to the “fear / greed” indicator, crypto sentiment has hit new lows. It is likely that extreme fear caused short positions to expand when Bitcoin fell below $ 30,000 on Tuesday.

According to Alternative, the Fear & Greed Index (FGI) was 10 last day, which is the fourth time this year. pic.twitter.com/qdjPoyoyAU

– Wu blockchain (@WuBlockchain) July 21, 2021

“The Fear & Greed Index (FGI) was 10 last day and has reached this value for the fourth time this year.”

“Many indicators are prone to a generally fearful environment right now,” Arcane Research wrote in a note Note Research Tuesday: The company warned that investors should regularly update some fear / greed indicators, especially in traditional markets.

“Remember what happened when the fear kicked in on March 12, 2020 when the index hit an all-time low of 3. Meanwhile, the S&P 500 continued to fall nearly 25%. “

Retail interest is falling

Google searches for Bitcoin have been declining since March 2020, coinciding with the sell-out. However, the current index of relative search interest has yet to have returned to its 2017 low. This could be an indication that many retail investors and the general public were familiar with Bitcoin before the advent of Bitcoin, Coin Metrics wrote in its Tuesday newsletter.

“Institutional acceptance is an important reason for Bitcoin’s recent success in 2020/2021.”

Chart showing Bitcoin search interest on Google over time | Source: Coin Metrics

The same scenario applies to Ethereum, which benefited from DeFi’s popularity over the past year.

Chart showing Ethereum search interest on Google over time | Source: coin data

Resilience of the bitcoin miners

Bitcoin miners are still accumulating the cryptocurrency, although some are moving elsewhere after China cracked down on mining. Glass knot write:

“Possibly the selling pressure of the offline miners is more than offset by the enormous profits of the remaining active miners.”

Diagram showing the net change in position of bitcoin miners | Source: Glassnode

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