Despite this week's sharp Bitcoin price correction, BTC derivative data and buying bulls show that the current rally remains intact.
Two weeks ago, few investors would expect the price of Bitcoin (BTC) to rise to more than $ 20,000. In fact, most had predicted a $ 30,000 BTC price in mid-2022 or late 2023, at best. This means that many holders were probably taken by surprise when the price of BTC rose to $ 34,800 just 17 days after crossing the $ 20,000 mark. Analysts generally expect a sharp correction to follow Bitcoin's 150% gain since November, but currently, there are no fundamental indicators to support this view.
Despite the recent bullish euphoria surrounding the Bitcoin price action, the digital asset faced a significant drop as the price fell $ 5,600 in 3 hours. More than $ 1.2 billion in liquidations followed this red candle and, normally, this type of movement would raise the alarm and lead analysts to predict a possible reversal of the trend. Each time Bitcoin reaches a new record, investors expect some form of correction. Although it failed to break through the $ 34,500 resistance, the price quickly jumped from its drop to less than $ 28,000 on January 4. This event may have frightened some buyers monetarily, but looking under the hood, it is a very optimistic sign. Last week, Bitcoin's dominance reached its highest level since March 2017, reaching 73%. The significant buying activity of institutional investors was linked to the movement, including the addition of 72,950 gray scale BTC in December. In addition, investments from MicroStrategy, Ruffer Investment, MassMutual and SkyBridge Capital are further indisputable evidence of institutional influx. Thus, BTC is becoming their preferred and almost exclusive investment option among cryptocurrencies.
The fall of Bitcoin's dominance triggered a mini altseason Regardless of the movements of professional traders, retailers have a huge impact on altcoins. Therefore, the Bitcoin rally created an opportunity for an alternative season and DeFi-related tokens appear to be the most benefited.
Weekly performance of the main cryptocurrencies. Source: MC ESMA Last week, Bitcoin topped the top 15 altcoins, which rose 9% on average. Most importantly, overall volume soared, eliminating any doubts about weekends or holiday pumps due to low market share. The Grayscale’s (GBTC) fund has normalized The Grayscale Bitcoin Trust (GBTC) peaked at 41% on December 21, but has since adjusted to its 90-day average at 19%. It is important to note that only qualified institutional customers can purchase shares directly from Grayscale. The rest of traders need to buy it on the secondary market and this is the reason for some distortions.
Perpetual futures financing is stable Professional traders tend to dominate long-term futures with defined expiration dates. Therefore, by measuring how much the futures are much more expensive compared to the normal spot market, the trader can assess its bullish level. Fixed-month 3-month futures should generally be traded at a premium of 1.5% or more compared to regular spot exchanges. Whenever this indicator weakens or becomes negative, it is an alarming red flag. Such a situation, also known as backwardation, indicates that the market is becoming bearish.
The graph above shows that the indicator briefly maintained levels above 5%, flirting with overbought levels. However, it has remained above 3%, despite the recent drop of less than $ 28,000 on January 4. Therefore, the indicator remained above the minimum limit of 1.5%, indicating optimism from professional traders. This data is a slightly positive reading, as the recent unexpected fluctuation has not shaken buyers. On the other hand, if cascading liquidations had caused buyers to de-leverage, this would have been worrying. Social network activity peaked
TheTie data also shows that there has been a recent rise in the price of BTC while tweets related to 'Bitcoin' have reached the highest level since December 2017. While a significant increase in Twitter activity is not necessarily equal to a vigorous retail purchase, it certainly helps to draw more attention as the cryptocurrency continues its upward trend. Proportion of put-to-call options The best way to assess general market sentiment is to measure whether more activity is going through call (buy) or put (sell) options. In general, call options are used for bullish strategies, while put options are for bearish strategies. A put-to-call ratio of 0.70 indicates that the put options are 30% behind the put options and, therefore, is high. In contrast, a 1.20 indicator favors put options by 20%, which can be considered low. One thing to note is that the metric aggregates the entire BTC options market, including all calendar months.
For the past week, investors have been leaning towards bearish protection strategies. As a result, the put-to-call ratio increased to 0.68, from 0.56 on December 27. Therefore, the indicator returned to its 3-month average, favoring the most optimistic purchase options by 32%. These data show that investor optimism remains relatively stable after the 17% rise in BTC prices last week.
Overall, each of the five indicators discussed supported a neutral to high range. Professional traders maintained their optimistic stance, despite the price fluctuation on January 4, and this is an encouraging result for optimists. As the BTC quickly recovered the $ 31,000 support, the bulls showed their confidence by adding positions after each fall. To conclude, there are no signs of exhaustion or excessive leverage on the part of buyers. The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of the Cointelegraph. Every investment and trading movement involves risk. You must conduct your own research when making your decision.
