Bitcoin price closes in on $40K, but pro traders are still skeptical

Ever since the price of Bitcoin dropped to $33,000 some analysts predicted it hasn’t bottomed yet and that we may see one more push down to $20,000 before a massive surge in its price.  There was so much panic in the market and an indicator revealed that many sellers were selling in the loss.

The best explanation given especially by the short-term virtual currency is that they are trying to prevent further loss and wait for a bottom.

A recovery pattern on the daily bitcoin chart which has been steady for a while now has been observed.  But the derivative markets are coming up with some indicators a trader should be very concerned about. Currently, the Bitcoin pro traders are not showing enough confidence in the futures and options market. Regardless of the negative signs from the indicator, there is a positive side of the data to look out for.

The journey of Bitcoin price to $40,000 seems very unpredictable by analysts. And whenever there is a surge in price to that resistant region, many crypto traders and analysts regard it to be “manipulation”. Irrespective of the idea behind the recovery of bitcoin’s price, it is very important for traders to analyze the derivative markets to have an idea of the positions of market makers, whales, and arbitrage in the market.

While the perpetual contract is the favorite interest of retail traders, fixed calendars futures and option is what pro traders usually opt-in for. More complex strategies are offered by these derivatives and trading on them can be very complicated.

Liquidation and road to $69,000

Since the 23rd of January, 2020, data revealed that liquidation of relevant future contracts has not occurred. When there is a termination of the position of buyers (long), it speeds up price correction. This is because those futures need to be sold at market price by the derivative exchanges. When trades cannot fulfill the requirements needed to hold a short(sell) or long(buy) position, liquidation occurs.

On the 23rd of January, the termination of the long position was about $290 million. This reveals the reason for the relative calmness of bitcoin recovery over the past weeks. Anyways, BTC is still trading 44% below its all-time high of $69,000

A 3-month futures annualized premium chart from  Laevitas.ch shows how the chart runs between 5% to 12% region to compensate traders whose money has been locked for the past few months until the expiration of the contract. When it is extremely bullish, it is indicated by a drop below 5% level while extremely bullish is indicated by a rise above 12%

On the 21st of January, the chart showed a dip of the metric below 5% and there has not been any indication of confidence from pro traders.

Bitcoin futures market remains neutral while options traders are skeptical

Option traders can be regarded as individuals or groups of people who make a profit by buying and selling stock options. Investors’ choice to buy or sell stocks on an exact future date is represented as stock options.

The direction of the market is very difficult to discern at the moment but the 25% delta skew indicates whenever market makers and arbitrage desks overcharge for downside or upside protection.

A rise above 10% on the skew indicator signifies that traders are panicking for a crash in Bitcoin price while a fall below 10% shows traders are excited.

According to a 30-day skew chart, it reveals that ever since there was a price recovery of 18% after BTC bottomed at $33,000, we have been trading near 10% for almost a week.

Despite the uncertain positive signal from bitcoin indicators, market makers and arbitrage desk would forcefully reverse the bearish positions once BTC price goes above the support at $42,000. However, despite the 52% crash of BTC from its all-time high, the premium futures did not give desperation signs. Considering this, a constructive view is provided by the data

In conclusion, the support at $40,000 is expected to be a very strong region and traders expect a bounce off against the region. Eventually, the outcome might be favorable for traders with the signal from metric derivative is way different

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Claire Rogstad
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