Traders are using various strategies to determine whether the Bitcoin price has bottomed, but on-chain activity and derivative data suggest that the situation is still unstable.
Has the Bitcoin price bottomed out? According to noshitcoins, derivatives and on-chain data show that it may fall further in the future.
Since Bitcoin made a 48% correction on May 12, reaching $30,000, traders have been trying to time the highly anticipated trend reversal. This move led to the liquidation of long positions in futures worth $12 billion. So far, the confidence of traders has still been hit to a certain extent.
The community began to look everywhere for signs of a trend reversal, including technical patterns, U.S. CPI inflation data, and exchange bitcoin deposits. For example, some analysts said that it is sufficient to increase the high to above $40,000.
We need to create a new higher high to confirm a local bottom. With the recovery of $40,000, we can start discussing the issue of continuing to return to $50,000. —Inmortal (inmortalcrypto) May 24, 2021. However, two days later, Bitcoin successfully exceeded $40,000, although this trend did not last more than six hours. At the same time, other traders inferred that the bottom of $30,000 needs to be retested before the rebound.
Bitcoin has formed a declining expanding wedge here. It is bullish, but there are two possible scenarios.
Green: Break through the resistance level and maintain the upward trend. Red: Retest the bottom of the wedge (approximately $30,000) and rebound from there. –Johnny Woo|Never DM you for Money (j0hnnyw00) May 25, 2021
Although these claims may be supported by empirical evidence or even logic, market prices do not always respond to external news or previous chart patterns. Unlike stocks, Bitcoin investors cannot rely on commonly used valuation multiples, or even comparative data.
Of course, digital store of value is a use case, but at the same time, it is uncensorable and easily transferable. In addition, some users value the point-to-point fiat currency exchange ability of Bitcoin outside of the KYC-regulated exchanges. Another factor to consider is that investors are increasing their Bitcoin portfolio due to the lack of correlation with traditional financial assets.
This diverse and sometimes conflicting argument is a panacea that creates obstacles to exploit market potential, shape adoption status, and even measure the effectiveness of recent developments.
Some people will cheer for Tesla and big companies to build Bitcoin reserves, while others don’t care about who holds Bitcoin, but instead focus on the challenges of scalability and fungibility.
Skew: professional “fear and greed” indicator
Call options allow the buyer to buy Bitcoin at a fixed price when the contract expires. On the other hand, put options provide insurance to the buyer to prevent prices from falling.
Whenever market makers and professional traders tend to be bullish, they will demand higher premiums for call (buy) options. This trend will result in a negative 25% delta skew indicator. On the other hand, if the cost of downstream protection is high, the skew indicator will become a positive number.
The 25% delta skew oscillates between minus 10% and plus 10%, and is usually considered neutral. This balance has been maintained until May 16, because Bitcoin lost the key support of $47,000, which has been maintained for 76 days.
As the market deteriorates, the 25% delta skew indicator also deteriorates, and the cost of protective options soars. Therefore, it seems premature to call the market bottom before the indicator establishes a neutral model closer to the 5% level.
Active Bitcoin supply heralds weak hands that need to calm down
Traders also monitor the number of BTCs that have been active recently. This indicator itself cannot be considered bullish or bearish because it does not provide information on how old the addresses involved are.
The 500% price increase from October 1, 2020, and the peak of $64,900 on April 14, 2021, resulted in a substantial increase in supply in the months before the increase. When this indicator shows a sharp decline, it indicates that investors are no longer interested in participating at the current price level.
Currently, 2.2 million BTCs have been active in the past 30 days, which is significantly higher than the level before October 2020.
Judging from the current situation, traders should not think that Bitcoin has bottomed out, at least until the market no longer has relevant activities around the level below $40,000.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.