BTC derivatives statistics are now similar to late-September readings, which preceded a 62% increase in Bitcoin price.
Bitcoin (BTC) has been trading below $45,000 for 14 days and is now 40% below its all-time high of $69,000. This movement is similar to that of late September 2021. When Bitcoin’s (BTC) price flatlined for 11 days, it was 36% below the previous all-time high of $64,900 on April 14.
To determine whether the current price momentum is similar to that of late September, traders should first examine the Bitcoin (BTC) futures contracts premium, also known as basis. These fixed-calendar futures, unlike perpetual contracts, do not have a funding rate, so their price will vary greatly from regular spot exchanges.
Determining the Market
A trader can determine the extent of bullishness in the market by comparing the expense gap between futures and the normal spot market. Buyers’ overconfidence causes the three-month futures contract to trade at a 15 % annualized premium or higher (basis).
For example, early in September, the basic rate fluctuated from 9% to 13%, showing confidence, yet the 3-month futures premium was 6.5 % on September 29, just before Bitcoin (BTC) broke out above $45,000. In general, readings below 5% are bearish; thus, a 6.5 % reading in late September indicated investors’ skepticism.
There are many parallels between today’s market conditions and September 2021, when Bitcoin (BTC) hit $45,000 and began a 62 % rise. First, the current Bitcoin 3-month futures premium is 6.5 %, with the indicator recently fluctuating between 9 and 11%, indicating slight optimism.
Unexpected positive market swings occur when investors are least expecting them, and this is exactly what is happening right now. It’s also worth looking at options markets to see if this move was unique to the instrument.
Call and Put
Equivalent call (buy) and put (sell) options are compared using a 25% delta skew. Because the protective put options premium is higher than the call options, the signal will turn positive when fear is prominent.
When market makers are optimistic, the 25 % delta skew shifts to the negative. In most cases, readings between -8% and 8% are considered neutral.
By late September 2021, the 25 % delta skew had dropped to around 10%. It indicates that options traders were in turmoil. Protective put (bearish) positions were overcharged. Market makers and arbitrage desks did it.
Options traders are neutral, according to the current 25 % delta skew indication. On January 10, however, the metric crossed the 8% positive level, signifying a moderate bearishness.
The current market conditions mimic late September when Bitcoin (BTC) reversed a 24-day downturn. Also, it launched a 62% rebound over the next three weeks, according to derivatives data.
Is there a chance this may happen again? Certainly, bitcoin (BTC) bulls hope so.
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