Although the Nov. 29 price spike of $4,700 Bitcoin (BTC), was likely to provide relief to holders, it seems premature to declare the bottom according to derivative metrics.
It should not be surprising that Bitcoin’s price is still 15% lower than the Nov. 10 high of $69,000 After an abrupt 22% correction, Bitcoin was back testing the $53,500 support just 15 days later.
MicroStrategy’s Monday announcement that it had purchased 7,002 Bitcoin at an average price $59,187 per coin may have encouraged today’s trend reversal. Between Oct. 1st and Nov. 29, the listed company raised $414.4 million by selling 571,001 shares.
Deutsche Boerse, a German stock exchange operator, announced that the Invesco physical Bitcoin exchange-traded note (or ETN) had been listed. Deutsche Boerse’s Xetra digital stock market will list the new product under the ticker BTIC.
Data shows that pro traders remain neutral to bullish
The futures basis rate is a measure of how bullish and bearish professional traders are placed. This indicator, also known as the futures basis rate, measures the difference between futures contracts versus the spot market at regular exchanges.
The preferred instrument of choice for arbitrage desks and whales is Bitcoin’s quarterly options. Although derivatives can seem difficult for retail traders because of the settlement date and price difference with spot markets, their most notable benefit is the absence of a fluctuating financing rate.
Basis rate for 3-month Bitcoin futures. Source: Laevitas.ch
Three-month futures are traded with an annualized premium of 5%-15%, which is considered an opportunity cost for arbitrage traders. Sellers can postpone settlement and demand a higher price, which causes the price gap.
As Bitcoin reached the $56,500 support, the bottom was at 9% on Nov. 27. After Monday’s rally to $58,000, the indicator moved back up to a healthy 12.2%. Although there isn’t much movement, it doesn’t seem like the market has been in a bearish mode for several weeks.
Related: Key data points indicate that the short-term correction in crypto markets is over
Additional insight can be gained from lending markets
Margin trading allows investors borrow cryptocurrency to increase their trading position and thus increases the returns. One can borrow USDT (Tether) to buy Bitcoin, increasing exposure. Borrowing Bitcoin is not allowed. You can only shorten it or place a bet on its price decline.
Contrary to futures contracts, the margin shorts and longs are not necessarily balanced.
OKEx USDT/BTC margin lending ratio. Source: OKEx
If the margin lending ratio is high it means that the market has bullish intentions. Conversely, a low lending rate indicates that the market has bearish intentions.
The chart shows that Bitcoin traders have borrowed more Bitcoin in recent months, as the ratio fell from 21.9 to 11.3 on Nov. 26. The data is bullish in absolute terms, however, as the indicator favors stablecoin borrowing at a large margin.
The derivatives data shows that pro traders are not excited about Bitcoin, even though it gained 9% over the Nov. 28 low of $53,400. These experienced whales, unlike retail traders, avoid FOMO. However, the margin lending indicator does show signs of excessive optimism.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.