Traders are using various strategies to determine if the price of Bitcoin has bottomed out, but on-chain activity and derivatives data suggest that the situation remains precarious.
Has the price of Bitcoin bottomed out? According to @noshitcoins, derivatives and chain data indicate that there could be more downsides in store.
Traders have been trying to time the highly anticipated trend reversal since Bitcoin (BTC) started its 48% correction to $ 30,000 on May 12. The move culminated in the liquidation of long futures positions worth $ 12 billion and, to date, trader confidence remains. something moistened.
The community began looking everywhere for signs of trend reversal, including technical patterns, US CPI inflation data, and Bitcoin currency deposits. For example, some analysts claimed that a higher high, followed by a move above $ 40,000, would be sufficient.
We need to make a new higher high to confirm a local bottom.
Get back 40k and we can start talking about a sustained move back to 50k. #Bitcoin pic.twitter.com/myeWXIYWpp
– Immortal (@inmortalcrypto) May 24, 2021
However, two days later, Bitcoin managed to break out of $ 40,000, although the move did not last more than six hours. Meanwhile, other traders inferred that a retest of the $ 30,000 bottom is needed before a bounce.
#Bitcoin $ BTC #BTC is forming a descending widening wedge here. He is optimistic, but there are two possible scenarios.
Green: break resistance and maintain the uptrend.
Red – Retest the bottom of the wedge (~ 30k) and bounce from there. pic.twitter.com/8L26kQvf7X
– Johnny Woo | Never DM you for money (@ j0hnnyw00) May 25, 2021
Although there could be empirical or even logical evidence to support those statements, market prices do not always react to outside news or previous chart formations. Unlike stocks, Bitcoin investors cannot rely on commonly used valuation multiples or even comparables.
Sure, a digital store of value is a use case, but at the same time, it cannot be censored and can be easily transferred. Additionally, some users value Bitcoin’s peer-to-peer fiat convertibility outside of KYC-regulated exchanges. Another factor to consider is investors who are increasing their Bitcoin portfolio due to the lack of correlation with traditional financial assets.
This panacea of diverse and sometimes conflicting narratives creates barriers to modeling market potential, adoption status, and even measuring the effectiveness of recent developments.
Some will cheer on Tesla and big companies that are building Bitcoin reserves, while others don’t care who has BTC and instead focus on the challenges of scalability and fungibility.
Bias: the “fear and greed” professional indicator
Call options allow the buyer to purchase Bitcoin at a fixed price when the contract expires. Put options, on the other hand, provide insurance to buyers and protect against price drops.
Whenever market makers and professional traders lean higher, they will demand a higher premium on call options. This trend will cause a negative delta bias indicator of 25%. On the other hand, if downside protection is more expensive, the bias indicator will turn positive.
Bitcoin 30-day options Delta deviation of 25%. Source: laevitas.ch
A 25% delta deviation ranging from negative 10% to positive 10% is generally considered neutral. This balanced situation held until May 16, as Bitcoin lost the critical support at $ 47,000, which had held for 76 days.
As markets deteriorated, so did the 25% delta bias indicator and the cost of hedging options skyrocketed. Therefore, until the metric establishes a more neutral pattern closer to the 5% level, it seems premature to call the bottom of the market.
Active Bitcoin Supply Indicates Weak Hands Need To Cool Down
Traders also monitor the amount of BTC that have been active lately. This indicator cannot be considered bullish or bearish on its own, as it does not provide information on the age of the addresses involved.
Active offer that was made at least once in the last 30 days. Source: CoinMetrics
The 500% price rally since October 1, 2020 and the peak of $ 64,900 on April 14, 2021, caused a significant increase in the supply moved in the months prior to the rally. When this metric shows a sharp decline, it indicates that investors are no longer interested in participating at the current price level.
There are currently 2.2 million active BTCs for the past 30 days, and this is significantly higher than the levels seen prior to October 2020.
As things currently stand, traders shouldn’t be for Bitcoin to bottom out, at least until the market no longer has relevant activity around the sub $ 40,000 level.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade movement involves risk. You should do your own research when making a decision.