Bitcoin Derivatives Entering the “Surrender” Zone, Has the Price Found a Bottom?

Analysts love to make price predictions and it seems they get it wrong 9 times out of 10. For example, how many times have analysts said “we will never see Bitcoin go back to price X” yet it still falls below that level a few months later?

It doesn’t matter how experienced or relevant a person is in the industry. Instead, Bitcoin’s 55% volatility needs serious consideration, and the impact this has on altcoins is often stronger in capitulation-like moves.

Zhu Su, an investor and co-founder of hedge fund Three Arrows Capital, has tweets:

“I was no doubt wrong about how much crypto could fall due to the macro situation. I remain generally optimistic about space travel and think it’s the most important big trend of our time. I joined CT in 2018 and will be here with you for years to come, up and down.”

On Dec. 7, Three Arrows Capital bought $676.4 million worth of ETH after the price fell 20% in 48 hours. Zhu also vowed to keep buying during “every panic dump,” although he admitted Ethereum fees are not affordable for most users.

To understand if there is still a market for bearish bets and where professional traders are located, let’s analyze the Bitcoin futures and options market data.

Futures traders do not want to go short

The futures premium indicator measures the difference between a long-dated futures contract and the current spot market price. Annual spreads of 5% to 15% are common in healthy markets and are because sellers need more money to delay payments longer.

On the other hand, when this indicator fades or turns negative, a red alert occurs, which is known as a “sell off”.

3 Month Bitcoin Futures Contract Fee | Source: Laevitas.ch

This indicator keeps the 5% threshold even though the price corrected by 52% in 75 days. When professional traders effectively enter the bearish position, the spread will be close to zero or even negative. As a result, the data shows a lack of interest in short positions during this current corrective period.

Options traders remain in the “fear” zone.

To rule out external factors affecting futures instruments, traders should also analyze the options market. The 25% delta difference compares call and put options. This indicator turns positive when fear prevails, since the premium to protect a put is higher than a call with a similar risk.

The opposite happens when greed is omnipresent, causing the 25% Delta Deviation Indicator to go negative.

25% delta deviation from 30-day bitcoin options | Source: Laevitas.ch

The 25% deviation indicator has entered the “fear” zone as it rose above 10% on January 21st. The 17% peak last occurred in early July 2021, and oddly enough, Bitcoin was trading for $34,000 at the time.

This indicator can now be interpreted as bearish considering that arbitrage switches and market makers are charging excessive fees to protect downside potential. However, this metric tends to be outdated and often predicts market bottoms. For example, bitcoin price bottomed at $29,300 just two weeks after the skewness indicator peaked at 17% on July 5th.

Not fully correlated with the traditional market

It’s worth noting that Bitcoin has been in a downtrend for the past 75 days, and this even preceded the Federal Reserve’s December 15 tightening speech. Additionally, the increased correlation with traditional markets fails to explain why the S&P 500 index peaked on Jan. 4, while Bitcoin is down 33% from its all-time high of $69,000.

Given the bears’ lack of interest in shorting BTC below $40,000 and the eventual capitulation of options traders, there doesn’t seem to be much room for Bitcoin to fall any further.

Additionally, bitcoin futures liquidations over the past week totaled $2.35 billion, significantly reducing buyer leverage. Of course, $32,930 is the ultimate bottom, but short sellers will likely wait for a rebound before entering bearish positions.

Bitcoin falls one more time before skyrocketing

Anonymous analyst Capo says Bitcoin will fall below $30,000 before bouncing back up.

BTC is trading at around $37,000 at press time and is down over 12% over the past week and over 27% over the past month.

However, Capo believes that if Bitcoin consolidates below $30,000, the bull market will officially be over.

“If it consolidates below $30k, it’s all over. Consolidation means that a high timeframe will close or break below this level + move from support to resistance. Right now I’m betting on a rebound from there after the wick dropped below $30k.”

The source: capo

Looking at the analyst’s chart, it looks like Bitcoin is following the market structure of the S&P500 from 1999 to 2009 on a two-week time frame. If this is the case, a move below $30,000 would give Bitcoin momentum to jump into a bullish position to a new all-time high.

The analyst noted that a lot of supply has been added to Binance futures, adding to his belief that Bitcoin will fall below $30,000.

“They just added a large supply of Binance futures… I think the price will fall below $30,000.”

The source: capo

capo to say 80% of his portfolio is currently stablecoin Tether (USDT), which is pegged to the US Dollar. Brothers believe Predictions below $30,000 will become invalid if Bitcoin consolidates above $41,000.

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