The major BTC trading indicators are on the verge of a “worst outcome,” suggesting that the current sell-off is far from over.
Market analysis
Bitcoin (BTC) briefly hit a five-month low this Monday at $39,650, marking a 42.6% drop from its current all-time high on November 22, 2022. Some say the “crypto winter” has begun to rake in $2.1 billion. Long leveraged synthetic crypto futures contracts have been liquidated in the past seven days.
The descending channel guiding Bitcoin’s negative performance over the past 63 days suggests that traders should expect a price below $40,000 in February.
Confidence from investors continued to decline following the December FOMC meeting of the US Federal Reserve on Jan. 5. The monetary policy regulator showed a commitment to reducing its balance sheet and interest rate hike in 2022.
On January 5, Kazakhstan’s political turmoil added to the pressure on the market. The country’s world-wide-web was shut down amid protests and this caused Bitcoin’s network hash rate to drop by 13.4%.
Futures traders remain neutral
To analyze the rise or fall of professional traders, one should keep an eye on the futures premium, also known as the “base rate”.
The index measures the difference between a longer-term futures contract and current market levels. An annual premium of 5% to 15% is expected in sane markets, which is a situation known as contango.
This price gap is due to the fact that sellers require more money to withhold payments for longer and a red alert appears whenever this indicator fades or turns negative, which is a scenario known as “back”.
Note that the futures market premium has not traded below 7% in the past few months. This is a great indicator considering the absence of Bitcoin price strength during this period.
Options traders are not as optimistic as
To rule out external factors specific to the futures instrument, one should also analyze the options markets.
The 25% delta deviation compares call (buy) and put (sell) options similarly. This metric will turn positive as fear prevails because the premium to protect puts is higher than similarly risky call options.
The opposite happens when greed is the prevailing mood causing the 25% delta deviation indicator to move into the negative zone.
Readings between negative 8% and positive 8% are generally considered neutral. The last time the 25% delta deviation indicator entered the “fear” range at 10% was on December 6, 2022.
Related: Bitcoin drops below $40k for first time in 3 months as fear set to ‘accelerate’
As a result, options market traders are on the very high edge of neutral to bearish sentiment as the indicator is currently at 8%. Furthermore, it is becoming more expensive to buy protective calls, so market markers and arbitrage tables are not confident that $39,650 is the bottom.
Overall, sentiment is pessimistic and $2.1 billion in aggregate futures liquidations signal that expecting derivatives traders (buyers) are rapidly losing confidence. Only time will tell where the exact bottom lies, but for now, there is no sign of strong support coming from professional traders.
The views and opinions expressed here are solely those of 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.