Bitcoin Rally to $18.4K? BTC price derivatives are showing strength in the key support zone
Bitcoin Rally to $18.4K? BTC price derivatives are showing strength in the key support zone
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Bitcoin (BTC) price lost 11.3% between December 14 and December 18 after briefly testing the $18,300 resistance.
The move followed a 7-day correction of 8% in S&P500 futures after Federal Reserve Chair Jerome Powell made hawkish statements following the December 14 rate hike.
Bitcoin price retreats to channel support
Macroeconomic trends have been the main driver behind recent moves. For example, the recent rebound from the 5-week ascending channel support at $16,400 has been attributed to the Central Bank of Japan’s efforts to rein in inflation.
Bitcoin 12-hour price index, USD. Source: TradingView
The Bank of Japan raised the limit on government bond yields on December 20, which are now trading at levels not seen since 2015.
However, not everything has been positive for Bitcoin as miners struggle with the hash rate nearing all-time highs and increased energy costs. For example, on Dec. 20, bitcoin miner Greenidge reached an agreement with its creditor to restructure $74 million in debt — though the deal requires the miner to sell nearly 50% of its equipment.
Additionally, Bitcoin mining exchange-listed Core Scientific reportedly filed for Chapter 11 bankruptcy on Dec. 21. While the company continues to generate positive cash flows, revenue is insufficient to cover operating expenses, which include paying back rent on its bitcoin mining equipment.
During these events, Bitcoin has held $16,800, so there are buyers at these levels. But let’s look at crypto derivatives data to understand if investors have increased their risk appetite for Bitcoin.
Bitcoin futures are back to backwardation
Fixed month futures contracts typically trade at a slight premium to regular spot markets as sellers charge more money to hold settlement longer. Technically known as contango, this situation is not exclusive to crypto assets.
In healthy markets, futures should trade at an annualized premium of 4% to 8%, which is enough to offset the risks plus the cost of capital.
Bitcoin 2 Month Futures Annualized Premium. Source: Laevitas.ch
It is becoming clear that attempts to push the indicator above zero in the last 30 days have completely failed. The lack of a bitcoin futures premium points to higher demand for bearish bets, and the metric has deteriorated from Dec. 14-21.
The current 1.5% discount indicates the reluctance of professional traders to add leveraged long (bull) positions when they are actually being paid to do so.
Top traders unwilling to let go of their longs
Still, investors should analyze the long-to-short ratio to rule out externalities that have only impacted the quarterly contract premium.
The metric collects data from on-site exchange client positions and perpetual contracts to better inform how professional traders are positioned.
Bitcoin long-to-short ratio of exchanges top traders. Source: coin jar
Although bitcoin briefly traded below $16,300 on Dec. 19, professional traders did not reduce their leveraged long positions according to the long-to-short indicator. For example, the Huobi trader ratio stabilized at 1.01 between December 16th and 21st.
Similarly, OKX showed a slight increase in its long-to-short ratio as the indicator moved from 1.02 to the current level of 1.04 in five days.
Finally, Binance’s metric rose slightly from 1.05 to 1.07, confirming that traders were not turning bearish after testing the ascending channel support.
The strength of the $16,800 support is a bullish indicator
Traders may not find that the lack of a futures premium necessarily translates into bearish price expectations — for example, a lack of confidence in exchanges may have deterred potential leveraged buyers.
Related: Pantera CEO on FTX Collapse; Blockchain has not failed
Additionally, the resilience of top traders’ long-to-short ratios has shown that whales and market makers have not reduced leverage longs despite the recent price drop.
In essence, Bitcoin price action has been surprisingly positive given the negative news flow from miners and the bearish impact of rising interest rates on risky markets.
Therefore, as long as the $16,500 channel support holds, the bulls have reason to believe that another shot at the $18,400 upper band before year-end is possible.
The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
