Bitcoin has been held below $45,000 for the past 14 days and is now 40% below its all-time high (ATH) of $69,000 set on Nov. 10 for 11 days and 36% below its previous ATH of $64,900 on April 14 .
Bitcoin price chart | Source: TradingView
To understand if current price dynamics are mimicking those seen in late September, traders should first analyze the Bitcoin futures premium, also known as “basis.” Unlike perpetual contracts, these fixed-schedule futures contracts do not have a funding rate, so their prices will vary wildly from regular spot exchanges.
By measuring the difference in cost between the futures contract and the regular spot market, a trader can gauge how bullish the market is. Excessive optimism from buyers tends to result in three-month futures trading at an annual premium (basis) of 15% or more.
For example, in early September, the base rate was between 9% and 13%, indicating confidence, but on September 29, just before Bitcoin broke above $45,000, the contract premium was similar to 3-month futures at 6.5%. In general, indices below 5% are generally considered bearish, so a reading of 6.5% at the end of September suggests that investors lack confidence.
Bitcoin 3 Month Futures Premium | Source: Laevitas.ch
In terms of current market conditions, there are many similarities to September 2021, just before bitcoin broke through $45,000 and started its 62 percent rally. First, the premium for Bitcoin 3-month futures is currently 6.5%, and the index has recently fluctuated between 9% and 11%, reflecting mild optimism.
Unexpected positive market moves occur when investors least expect it, and that’s exactly what’s happening right now. To confirm whether this move is concrete or not, one should also analyze the options market. The 25% delta difference compares call options versus put options. The indicator turns positive when “fear” prevails because the put premium is higher than the call premium.
The opposite happens when market makers are bullish, causing the 25% delta deviation to become negative. Results between -8% and +8% are generally considered neutral.
Bitcoin Options Delta 25% Deviation Allocation in September 2021 | Source: Laevitas.ch
The 25% delta deviation is close to 10% through the end of September 2021, showing the concern of options traders. Market makers and arbitrageurs inflated fees for put (discounted) option positions.
Allocation of 25% delta of bitcoin options | Source: Laevitas.ch
According to the current 25% Delta Deviation indicator, options traders are neutral. However, on January 10th the index reached +8%, signaling a slight bearish sentiment.
Derivatives market indicators show current market conditions are similar to those seen in late September, when Bitcoin reversed its 24-day downtrend and started 62% higher three weeks later.
Will this phenomenon repeat itself? The cops hope so, anyway.
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