There is no doubt that Bitcoin (BTC) has been in bearish for the past few months, but throughout the period, derivatives indicators have been relatively neutral. This could be because cryptocurrencies have a strong volatility record and even 55% corrections from all-time highs are expected.
After fighting for two months to maintain the $ 30,000 support and eventually losing it on July 20th, futures premiums and options turned bearish. Even PlanB’s stock-to-flow valuation model did not expect prices below $ 30,000 for the current month. The model uses the stock-to-flow ratio, which is defined by the current number of bitcoins in circulation and the annual issue of newly mined bitcoin.
On-chain data is positive, but derivative indicators are not
On-chain analysis shows that the monthly average of 36,000 BTC withdrawn from exchanges is usually interpreted as accumulation. However, this superficial analysis fails to recognize the increasing use of tokenized Bitcoin in decentralized financial applications (DeFi).
The graph above shows that over the past three months, 40,660 BTC has been added to Wrapped Bitcoin (WBTC) and RenBTC (RENBTC). This number does not take into account deposits made with BlockFi, Nexo, Len and the various services that provide income from the user’s cryptocurrency deposits.
The removal of bitcoin previously deposited on exchanges could be a sign that traders’ intent to sell in the short term is being diminished. At the same time, however, it could also represent investors looking for higher returns through other avenues. In short, these coins could have been on the exchanges as collateral or as a long-term asset.
As mentioned earlier, negative derivative indicators should weigh more than assumptions about the bullish or bearish interpretation of on-chain data. In an initial analysis, analysts should review the futures contract premium, also known as the basis.
This indicator enables investors to understand how bullish or bearish professional traders are as it measures the difference between monthly futures contracts and the current spot market price.
A neutral base rate should be between 7% and 15% annualized. This price difference is caused by sellers charging more money to postpone settlement, a situation known as contango.
However, when that premium subsides or turns negative, it is a very bearish scenario known as backwardation. On July 20, the indicator held a negative value of 2.5% for more than twelve hours for the first time.
Right now, professional traders are likely to be bearish after Bitcoin lost critical support of $ 30,000, but further confirmation can be obtained by looking at options markets.
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Professional traders look for protective put options
Unlike futures contracts, options come in two different instruments. Call options provide the buyer with upward price protection, and the put option is a right to sell Bitcoin at a fixed price in the future. Put options are generally used in neutral to bearish strategies.
When the put-to-call ratio rises, it means that the open interest of these neutral to bearish contracts is growing and is usually interpreted as a negative signal. The most recent data at 0.66 still favors the call options but these instruments are gradually losing ground.
There are enough signs of a bear market in the futures and options markets right now, and it has not for the past two months. This suggests that even professional traders are lacking confidence after failing to hold the $ 30,000 support for the past 48 hours.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.