Bitcoin is edging closer to the $40,000 mark, but data from derivatives suggests traders remain neutral to optimistic.
Since jumping from a $52,950 high on Sept. 7 to a $42,800 low two hours later, the price of Bitcoin (BTC) has been extremely volatile. More recently, despite being intensively tested, the $45,000 support held for a few days, triggering a $3,400 up-and-down swing on Sept. 13.
Since the liquidation of $3.54 billion worth of long (buyers) futures contracts on Sept. 7, there’s little doubt that shorts — traders speculating on a price drop — have had the upper hand.
The fact that MicroStrategy added over 5,050 Bitcoin at an average price of $48,099 on September 13 was insufficient to restore trust, and the cryptocurrency’s price stayed constant near $44,200.
While the impact of shorts may be felt, regulatory worries are more likely to keep markets suppressed, as reported by Reuters on September 10. The US Treasury Department has allegedly considered potential regulation for private stablecoins.
Regulators’ attention is growing as the market capitalization of stablecoins has risen from $37 billion in January to $125 billion today. In addition, Visa and Mastercard have expressed interest in stablecoin-related solutions.
Whatever the cause of the present market downturn, futures contracts have been showing optimistic sentiment since August 7.
Professional traders have been bullish for the past five weeks
Whales and arbitrage desks love Bitcoin quarterly futures because they have the huge advantage of not having a variable funding rate. Due to their settlement date and price difference from spot markets, they may appear difficult to retail traders.
When traders choose everlasting contracts (inverse swaps), derivatives exchanges levy a fee every eight hours based on which party requires the most leverage. Meanwhile, to compensate for the delayed settlement, fixed-date expiry contracts often trade at a premium to conventional spot market exchanges.
Because the money locked in these contracts may otherwise be employed on lending possibilities, a 5% to 15% yearly premium is projected in robust markets. Contango is a term used to describe a condition that occurs on practically every derivatives instrument.
During bearish markets, however, this indication fades or goes negative, signaling a red flag known as “backwardation.”
The premium (basis rate) rose above 8% on Aug. 7 and has been moderately bullish since then, as shown in the chart above. Even though Bitcoin has tested the sub-$44,000 barrier twice in the last 15 days, the data is incredibly healthy and shows little lack of commitment.
Futures open interest remains healthy
Overleveraged traders were harmed by the $3.54 billion in derivatives market liquidations on Sept. 7, but open interest on Bitcoin futures is still robust in the grand scheme of things.
Consider how the current $14.8 billion amount is 23% higher than the $12 billion average for June and July. This contradicts claims that traders have been negatively influenced and are afraid to open positions as a result of Bitcoin’s volatility or a looming bearish event.
Despite the recent price fall, there should be no doubt that investors are neutral to positive, at least according to futures markets. Of course, traders should keep an eye on key resistance levels, but $44,000 has so far held its ground.