Analysts say Bitcoin’s open interest wipeout ‘will give way to further upside’

Bitcoin’s drop to $42,000 obliterated its open interest and liquidated a large swath of leveraged traders, but analysts say OI resets typically provide great buying opportunities.

The weekend is upon us and fear remains the dominant short-term sentiment in the cryptocurrency market. Earlier today Bitcoin (BTC) price dropped to $47,250 and investors are biting their nails after data from the U.S. consumer price index (CPI) shows inflation reaching a forty-year high at 6.8%.

Data from Cointelegraph Markets Pro and TradingView shows that a midday push by bulls to reclaim the $50,000 support level was handily defeated and sellers sent the price back below $48,000 which could possibly force another daily lower high for the top-ranked cryptocurrency. 

BTC/USDT 4-hour chart. Source: TradingView

With the prospect of a major run up in price to end the year all but dashed, traders have shifted their attention to managing risk and identifying the best levels to buy dips. Here’s a look at what analysts are saying about Bitcoin’s outlook heading into 2022.

Open interest wipeout “will give way to further upside”

As seen in previous instances where the price of BTC saw a rapid decline, there has been a significant decrease in the open interest (OI) for BTC on derivative exchanges as highlighted in a recent report from Delphi Digital. The report noted a 50% decrease in OI after this latest market downturn as over-leveraged longs positions were decimated.

BTC futures open interest vs. BTC price. Source: Delphi Digital

While the experience was likely an unpleasant one for traders who were overexposed, the analysts suggested that deleveraging events like this are beneficial over the long term and will often “give way to further upside” as the previous froth and over-exuberance are replaced with a more measured trading environment.

The sharp reduction in OI over the past month may also be signaling that the short-term bottom for BTC may be in according to Delphi Digital, and its possible that the current sell-off could be reaching the point of exhaustion.

Delphi Digital said,

“The 30-day % decline in OI for BTC has reached levels that previously signaled a bottom was forming (or wasn’t too far out).”

Range-bound trading for BTC until 2022

According to Ben Lilly, co-founder of Jarvis Labs, the price of Bitcoin is likely “to stay in this trading range until at least the end of the month,” mainly due to the fact that Dec. 31st marks “the largest open interest in terms of open contracts.”

Lilly highlighted previous instances of major drawdowns resulting in a high number of liquidations as part of the reasoning and he explained that the market has typically taken some time to build momentum after these pullbacks.

BTC futures open interest. Source: Espresso

Lilly said,

“Luckily, for anybody wanting to accumulate on a weekly basis or at the bottom portion of the current trading range, this is a great setup.”

Related: Trader who called 2017 Bitcoin price crash raises concerns over ‘double top’

Should traders look for continuation of the uptrend?

A final bit of insight was provided by analyst and pseudonymous Twitter analyst ‘Rekt Capital’, who posted the following chart of BTC price trading between two key exponential moving averages.

BTC/USD 1-week chart. Source: Twitter

Rekt Capital said,

“Overall, BTC is consolidating inside the two key EMAs right now. Just like in May 2021. And just like in May… Continued price stability and consolidation in between these two EMAs will precede new macro uptrend continuation.”

The overall cryptocurrency market cap now stands at $2.238 trillion and Bitcoin’s dominance rate is 40.7%.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Wen moon? Data shows pro traders becoming more bullish on Bitcoin price

MicroStrategy’s purchase of 7,002 BTC might have helped boost Bitcoin price today, but derivatives data also shows that pro traders are becoming more bullish.

The $4,700 Bitcoin (BTC) price spike on Nov. 29 was likely a great relief for holders, but it seems premature to call the bottom according to derivative metrics. 

This should not come as a surprise because Bitcoin price is still 15% below the $69,000 all-time high set on Nov. 10. Just 15 days later, the cryptocurrency was testing the $53,500 support after an abrupt 22% correction.

Today’s trend reversal was possibly encouraged by MicroStrategy’s announcement that it had acquired 7,002 Bitcoin on Monday at an average price of $59,187 per coin. The listed company raised money by selling 571,001 shares between Oct. 1 and Nov. 29, raising a total of $414.4 million in cash.

More bullish news came after German stock market operator Deutsche Boerse announced the listing of the Invesco Physical Bitcoin exchange-traded note or ETN. The new product will trade under the ticker BTIC on Deutsche Boerse’s Xetra digital stock exchange.

Data shows pro traders are still neutral-to-bullish

To understand how bullish or bearish professional traders are positioned, one should analyze the futures basis rate. That indicator is also known as the futures premium, and it measures the difference between futures contracts and the current spot market at regular exchanges.

Bitcoin’s quarterly futures are the preferred instruments of whales and arbitrage desks. Even though derivatives might seem complicated for retail traders due to their settlement date and price difference from spot markets, the most notorious benefit is the lack of a fluctuating funding rate.

Bitcoin 3-month futures basis rate. Source: Laevitas.ch

The three-month futures typically trade with a 5%–15% annualized premium, which is deemed an opportunity cost for arbitrage trading. By postponing settlement, sellers demand a higher price and this causes the price difference.

Notice the 9% bottom on Nov. 27, as Bitcoin tested the $56,500 support. Then, after Monday’s rally above $58,000, the indicator shifted back to a healthy 12%. Even with this movement, there is no sign of excitement, but none of the past few weeks could be described as a bearish period.

Related: Key data points suggest the crypto market’s short-term correction is over

Lending markets provide additional insight

Margin trading allows investors to borrow cryptocurrency to leverage their trading position, therefore increasing the returns. For example, one can buy Bitcoin by borrowing Tether (USDT), thus increasing the exposure. On the other hand, borrowing Bitcoin can only be used to short it or bet on the price decrease.

Unlike futures contracts, the balance between margin longs and shorts isn’t necessarily matched.

OKEx USDT/BTC margin lending ratio. Source: OKEx

When the margin lending ratio is high, it indicates that the market is bullish—the opposite, a low lending ratio signals that the market is bearish.

The chart above shows that traders have been borrowing more Bitcoin recently, because the ratio decreased from 21.9 on Nov. 26 to the current 11.3. However, the data leans bullish in absolute terms because the indicator favors stablecoin borrowing by a wide margin.

Derivatives data shows zero excitement from pro traders even as Bitcoin gained 9% from the $53,400 low on Nov. 28. Unlike retail traders, these experienced whales avoid FOMO, although the margin lending indicator shows signs of excessive optimism.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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Bitcoin price descending channel and loss of momentum could turn $60K to resistance

After a slight hiccup in BTC futures premium, traders seem comfortable despite the $58,000 support retest and the risk of $60,000 turning to resistance.

Bitcoin (BTC) appears to lack the strength to retest the $67,000 all-time high that it reached on Oct. 20 and this is causing investors to question whether or not the bullish moment has faded. Even with the price facing these hurdles, it’s still premature to call the $58,000 support level test the beginning of a descending channel.

Bitcoin price in USD at Coinbase. Source: TradingView

Among the factors limiting the rally is the regulatory uncertainty in the United States. Anne Termine, a partner in the government enforcement and investigations practice at Bracewell LLP and former chief trial attorney at the Commodities Futures Trading Commission (CFTC), said that “there are no easy answers” for the agency to provide clear rules.

Increasing adoption, on the other hand, has been pressuring traditional banks to seek cryptocurrency product offerings. For example, major Russian private bank Tinkoff, owner of a large online brokerage services, is researching crypto-related investment services even though the Bank of Russia withholding such launches.

This week Coinbase exchange hit the top spot as the most downloaded app for the United Stated Apple Store, which is mind-blowing. Coinbase beat tech giants like TikTok, YouTube and Instagram and this is not a small feat. Coinbase first listed on the app store in 2014 and was the most popular download in the U.S. in 2017 and May 2021.

Pro traders stumbled but are bullish again

To determine how bullish or bearish professional traders are, one should monitor the futures premium — also known as the “basis rate.”

The indicator measures the difference between longer-term futures contracts and the current price at spot market exchanges. A 5% to 15% annualized premium is expected in healthy markets, otherwise known as contango.

This price gap is caused by participants demanding more money to withhold settlement longer, and a red alert emerges whenever this indicator fades or turns negative, known as “backwardation.”

Bitcoin 3-month futures basis rate. Source: Laevitas.ch

Notice how the sharp decrease caused by the $58,000 resistance test on Oct. 27 caused the annualized futures premium to reach its lowest level in three weeks. Still, the indicator recovered nicely to the current 17%, signaling a moderate bullishness.

To confirm whether this movement was specific to that instrument, one should also analyze options markets.

The 25% delta skew compares similar call (buy) and put (sell) options and will turn positive when “fear” is prevalent. That situation reflects the protective put options costing higher than similar risk call options.

The opposite movement holds when market makers are bullish, causing the 25% delta skew indicator to shift to the negative area. Readings between negative 8% and positive 8% are usually deemed neutral.

Deribit Bitcoin options 25% delta skew. Source: laevitas.ch

The 25% delta skew has been ranging in the neutral zone since Sep. 30. The latest bottom on Oct. 25 was negative 6%, not enough to be considered moderate bullishness. However, not even Bitcoin’s 12.5% correction from $66,600 on Oct. 21 to $58,200 on Oct. 28 was enough to inflict fear on professional traders.

Although no bearish signs emerged from the Bitcoin derivatives market, bulls should worry about the potential descending channel starting on Oct. 19. If that movement gets further confirmation, traders should expect $60,000 to become a resistance by Nov. 12.

There are no stress signs currently from professional traders, so a correction after a 63% rally in three weeks that led to the $67,000 all-time high on Oct. 20 should not be problematic.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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