Rising Bitcoin Prices Cause Cascade of Short Liquidations, Highest Ratio of Short vs. Long Wipeouts Since July 2021

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July 15, 2022 Bitcoin.com

Leading US Crypto Exchange Coinbase To Offer Bitcoin Futures Product on New Derivatives Exchange

June 24, 2022 The Daily Hodl

2 key Bitcoin price metrics suggest BTC is primed to reclaim $40,000

January 31, 2022 Coin Telegraph

2 key Bitcoin price metrics suggest BTC is primed to reclaim ,000

Apple

Data suggests $34,000 was the bottom and BTC’s recent performance could be a sign that traders are beginning to open fresh longs.

Cryptocurrencies had a volatile week after Bitcoin's (BTC) sudden crash to $33,000 on Jan. 24. However, the sharp 9% drop fully recovered within 8 hours after BTC price regained the $36,000 support.

On Jan. 26, Bitcoin rallied to $38,960 but it could not sustain the level and corrected by 8.8% in the following 8 hours. When factoring in the recent ups and downs, Bitcoin managed to only gain a meager 1.6% over the past seven days.

Even with the considerable price swings, the aggregate futures contracts liquidations were relatively low. Longs (buyers) had $570 million futures terminated, while shorts (sellers) faced $690 million. Data shows that Bitcoin futures represented 41% of the total $1.25 billion liquidations.

Regulatory winds could be limiting BTC’s price recovery

The total crypto market capitalization presented a modest 1.6% weekly increase, in line with Bitcoin's performance.

*Total crypto market capitalization, USD billion. Source: TradingView*

Notice how the Jan. 24 price is forming higher lows and currently shows support at $1.75 trillion. Even with the price being 22% down in 2022, the total crypto market capitalization showed a healthy 12.5% bounce since the Jan. 24 low.

Investors seem to be digesting this week's regulatory news where United States Congressman Ted Budd submitted an amendment to scrub a bill provision allowing the U.S. Treasury to unilaterally prohibit certain financial transactions without public input.

If passed in its current form, the America COMPETES Act of 2022 would result in a significant blow to the cryptocurrency industry, as Coin Center's executive director Jerry Brito stated.

Investors were negatively impacted by news that the U.S. White House is reportedly preparing an executive order on crypto to make government agencies conduct risk analysis on cryptocurrency as a national security threat.

Metaverse tokens decoupled after last week’s Apple news

Steady bearish newsflow might have been the cause for cryptocurrencies’ recent price action but there were some stellar performances from Metaverse tokens.

*Top weekly winners and losers on Jan. 31. Source: Nomics*

Apple (AAPL) CEO, Tim Cook, said in an investors' call on Jan. 27 that metaverse applications have a lot of potential and that his company is investing in augmented reality developments on its devices.

The news was enough to catapult metaverse-related tokens by up to 36%, including Flow, The Sandbox (SAND), Decentraland (MANA), Enjin Coin (ENJ), and Arweare (AR).

On the other hand, Terra (LUNA) was impacted after the Avalanche-based reserve currency Wonderland Money (TIME) announced that a pending proposal would determine whether the project closes up shop or not. As a result, the MIM stablecoin dipped below 1.00 and some speculate that this may have had a knock-on effect on Terra's LUNA and UST token.

Scalability and interoperability blockchain solutions Cosmos (ATOM), Fantom (FTM), and Harmony (ONE) presented negative performances after the Ethereum hash rate surpassed 1.11 PH/s, its highest level ever registered. A higher hash rate indicates that more miners are joining the network, which helps to cement blockchain security.

Tether premium and CME futures showed improvement

The OKEx Tether (USDT) premium measures the difference between China-based peer-to-peer (P2P) trades and the official U.S. dollar. Figures above 100% indicate excessive demand for cryptocurrency investing. On the other hand, a 5% discount usually indicates heavy selling activity.

*OKEx USDT peer-to-peer premium vs. USD. Source: OKX*

The Tether indicator continued to display strength as it stood above 99% over the past seven days. That is in stark contrast to three weeks ago when panic selling from China-based traders drove the indicator to a 4% discount.

To confirm that the crypto market structure has improved, traders should analyze the CME's Bitcoin futures contracts premium. This metric analyzes the difference between longer-term futures contracts to the current spot price in regular markets.

Whenever this indicator fades or turns negative (backwardation), it suggests that there is bearish sentiment.

*BTC CME 2-month forward contract premium vs. Bitcoin/USD. Source: TradingView*

These fixed-month contracts usually trade at a slight premium, indicating that sellers request more money to withhold settlements for longer. As a result, futures should trade at a 0.5% to 2% premium in healthy markets, a situation known as contango.

Notice how the indicator flirted with the backwardation from Jan. 18 to 24 as Bitcoin dipped below $42,000. However, as BTC showed signals that $33,000 could have been a local bottom, the futures markets recovered a healthy 0.5% premium.

Considering that the aggregate cryptocurrency market capitalization is down 22% in 2022, the market structure looks primed for a recovery.

Barring a significant change in these fundamentals, Bitcoin bulls are probably beginning to feel comfortable adding positions below $40,000.

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.

BTC Futures Open Interest Continues to Rise Following Bitcoin ETF Listings Last Month

November 5, 2021 Bitcoin.com

Bitcoin ETF May Feel Good to BTC Enthusiasts, but Adoption May Not Advance In-Kind

October 22, 2021 Bitcoin.com

What Bitcoin correction? BTC price holds $55K despite several bearish indicators

October 9, 2021 Coin Telegraph

What Bitcoin correction? BTC price holds K despite several bearish indicators

Bitcoin Price

Bitcoin price refuses to pull back despite Bollinger Bands and Fear and Greed pointing to an overheated rally.

Experienced analysts and media outlets including Cointelegraph recently highlighted some indicators suggesting that the Bitcoin (BTC) price rally could be overextended.

Those bearish views include one from Bollinger bands creator John Bollinger, suggesting traders use a trailing stop, as signs of a “top” were building up.

However, it is worth noting that Bollinger Bands and the Fear and Greed indicator are backward-looking metrics. Therefore, those will usually flash overbought levels whenever there’s a 30% weekly rally, such as the most recent one.

As crypto analyst TechDev_52 correctly questioned, there’s no way to know whether we’re entering a large potential correction or a rally continuation.

Now you know why they call it a bear “trap”. It’s damn convincing.

How do you know the “trap” from the “peak”? One’s round the other’s pointy.

Which does this look like to you? $BTC pic.twitter.com/aumWqaMsut
— TechDev (@TechDev_52) May 16, 2021

For example, popular YouTuber and trader Nebraskangooner, shows that the recent $56,000 top could have been the upper range of a bullish channel that has guided Bitcoin since late July.

#Bitcoin

OBV perking up but still hasn't quite broken out yet.

Hitting the top of the channel.

Would love to see bullish consolidation at the range high leading to an OBV breakout w/ price breakout for mega bullish continuation. https://t.co/btm5aW7WTW pic.twitter.com/kPqwOSMgE1
— NebraskanGooner (@nebraskangooner) October 6, 2021

"Greed" mode can last for weeks or months

Going back to the Fear and Greed indicator, below are some examples that such a metric can sustain overbought levels for longer than three or four weeks.

*Bitcoin ‘Fear & Greed’ index (above) and Bitcoin price at Bitstamp (below). Source: btctools.io, TradingView*

Notice how between Jan. 29 to Feb. 26, the Bitcoin Fear and Greed indicator remained above 65, indicating traders were overconfident.

The metric uses trading volume, futures open interest, social metrics, and search data to calculate how hyped the market is.

Thus, it took four weeks before a significant Bitcoin price correction took place after the warning sign popped up. Whoever sold in the initial days after the indicator flashes missed the 70% rally that followed.

A similar pattern happened between July 23 and Aug. 25, while the Bitcoin price continued to rally. Yes, a correction will always come at some point, but how many weeks or months later?

Bollinger Bands, a good short-term indicator

John Bollinger is an experienced and well-respected trader, but his indicator is the moving average plus some deviation based on the current volatility. In short, a 30% weekly move will be outside this range most of the time, considering Bitcoin’s usual 4.5% daily volatility.

*Bitcoin price at Coinbase using 20-day Bolling Bands. Source: TradingView*

Certainly, a minor correction tends to follow through when Bitcoin breaks the upper Bollinger band, but that has absolutely zero correlation to the price some two to four weeks ahead.

The funding rate has been neutral

Lastly, one should analyze the funding rate, a fee charged by derivatives’ exchanges to balance the risk between longs (buyers) and shorts (sellers) as their leverage varies. Sure enough, when a buying spree takes place, the indicator goes up.

*Bitcoin 8-hour perpetual futures funding rate. Source: Bybt.com*

The current 0.04% average rate per 8-hour, or 0.8% per week, is nothing out of the ordinary. Back in December 2020, for example, it stayed above 1.5% per week for a whole month, and then again in February 2021.

Similar to the Fear and Greed indicator, this metric shows that buyers are getting overconfident as it surpasses 0.10% per 8-hour, but not necessarily an alarming level.

As long as buyers are confident that the rally will continue, paying a 1.5% or even 3% weekly fee won’t force them to close the leverage longs. For example, if a Bitcoin supply shortage on exchanges has caused the recent rally to $56,000 as holders accumulate, there might be room to $80,000 or higher.

However, a crash can be expected if some bearish events occur in the near future, such as exchange-traded fund requests being denied or some draconian U.S. ban on stablecoins. In such an event, Bitcoin will not breach the all-time high, and those backward-looking metrics will finally “work.”

Big investors pivoting from Bitcoin to Ether futures: JPMorgan

September 24, 2021 Coin Telegraph

BTC futures

Ether futures are currently trading at a premium as investors make the switch from Bitcoin-based products.

American multinational investment bank JPMorgan has revealed that institutional investors are starting to shy away from Bitcoin futures in favor of Ether derivatives.

In a note to investors on Sept. 22, analysts at the Wall Street bank said that Bitcoin futures on the Chicago Mercantile Exchange (CME) have traded at a discount compared to spot BTC prices during September.

As a consequence, Ethereum-based products have grown in popularity as investors made the switch to the world’s second-largest crypto asset. The analysts commented that there has been a “strong divergence in demand,” before adding:

“This is a setback for Bitcoin and a reflection of weak demand by institutional investors that tend to use regulated CME futures contracts to gain exposure to Bitcoin,”

When demand is high, BTC futures usually trade at a premium over the spot markets due to high BTC storage costs and enticing yields for passive crypto investing, the analysts added.

According to CME data, the 21-day average ETH futures premium rose to 1% over Ether prices on the spot markets. “This points to much healthier demand for Ethereum vs. Bitcoin by institutional investors,” commented the JPM analysts.

According to Skew Analytics, Binance is the industry leader for BTC futures volumes with $20 billion traded over the past 24 hours. OKEx is second with $5.36 billion and CME has just $2.34 billion traded over the past 24 hours by comparison. Binance also dominates for ETH futures with a daily volume of $9.7 billion.

Somewhat ironically JPM’s take on crypto futures emerged on the same day a motion was filed in a Manhattan federal court ordering JPMorgan to pay $16 million to Treasury futures investors for creating false demand, or “spoofing”. According to Law360, the move follows the bank’s $920 million criminal settlement with the U.S. Department of Justice in September 2020 for manipulating commodities futures markets.

In other institutional adoption news, two trust funds based on Bitcoin and Ethereum have been launched by California-based Cambrian Asset Management. The institutional investment products will offer exposure to the underlying assets but cut out some of the volatility according to Bloomberg.

The firm’s flagship crypto hedge fund, which trades 50 digital assets, has gained 76% this year through August, whereas BTC itself had gained 62% in the first 8 months of the year.

Key Bitcoin options ‘fear’ indicator reflects traders’ regulatory concerns

September 22, 2021 Coin Telegraph

basis

On Tuesday, SEC Chair Gary Gensler re-confirmed his plan to crack down on cryptocurrencies, and traders’ regulatory concerns are confirmed by this key Bitcoin futures and options indicator.

After 46 consecutive days of trading above $42,000, Bitcoin (BTC) price started to show weakness on Sept. 21. Over the last three days, the 13% accumulated loss was enough to erase the hard-earned gains added since Aug. 6. Historicals also show that the previous bearish cycle took 79 days to regain the all-important $42,000 level.

Traders' attention turned to the start of the U.S. Federal Reserve's monetary meeting, where the financial authority is expected to indicate whether it will curtail the $120 billion monthly asset repurchase stimulus program. Curiously, as all this takes place, China's equity markets, as measured by the iShares MSCI China ETF ($MCHI), rebounded 1% on Sept. 21.

Is China really the root of the recent correction?

The apparent disconnection between Bitcoin's performance and the global markets' slight recovery caused investors to question whether cryptocurrency regulation is playing a role in the current bearish scenario.

Today U.S. Securities and Commission (SEC) Chair Gary Gensler spoke to the Washington Post, and during the interview, he called stablecoins instruments for use at the "casino gaming tables."

Groan. The US regulatory clampdown on crypto which has been brewing the past six months just looks like it’s going to get uglier & uglier with each passing week. Not even sure what impact it’s going to have on the markets, but there sure isn’t much to be optimistic about rn.
— Grant Gulovsen, Esq. (@gulovsen) September 19, 2021

As noted by the attorney Grant Gulovsen, the looming shadow of regulation is expected to have a short-term bearish impact, and investors in any market hate uncertainties regarding what products and services will be allowed.

*Bitcoin price in USD at Coinbase. Source: TradingView*

Notice how the $42,000 level was crucial in determining the end of the mini-bear cycle that was supposedly initiated by Elon Musk's remarks on Bitcoin mining energy use on May 12.

To effectively measure how professional traders are pricing the risk of the further price collapse, investors should monitor the 25% delta skew, which compares similar call (buy) and put (sell) options side-by-side. It will turn positive when the protective put options premium is higher than similar risk call options.

A skew indicator oscillating between -7% and +7% is usually deemed neutral. On the other hand, the metric shifts above this range whenever the downside protection is more costly, typically a "fear" indicator.

*Deribit Bitcoin options 25% delta skew. Source: Laevitas*

As shown above, Bitcoin options traders have been neutral since July 25, when the indicator dropped below the 7% threshold. However, the recent price action caused shorter-term options traders to enter "fear" mode after the metric reached 9%.

Options markets confirm investors' lack of conviction

To exclude externalities specific to this options instrument, one should also analyze the perpetual futures markets.

Unlike regular monthly contracts, perpetual futures prices are very similar to those at regular spot exchanges. This feature makes retail traders' lives a lot easier because they no longer need to calculate the futures premium or manually roll over positions near expiry.

The funding rate was introduced to balance the exchange's exposure and it is charged from longs (buyers) when they are demanding more leverage. However, when the situation is reversed and shorts (sellers) are over-leveraged, the funding rate goes negative, so they become the ones paying the fee.

*Bitcoin 8-hour USDT/USD margin futures funding rate. Source: Bybt*

The chart above shows that Bitcoin's funding rate has constantly shifted to the negative side, despite not being sustainable or relevant. For example, a 0.05% rate charged every 8 hours is equivalent to 1% per week, which shouldn't force any derivatives trader to close their position.

Therefore, options markets data validates the "fear" indicator coming from the positive 25% delta options skew. There is a lack of conviction from buyers using derivatives markets, which is likely related to the recent negative regulatory concerns. The latest victim to regulatory pressure came from Coinbase exchange's decision to avert plans for offering a crypto lending program.