Bitcoin futures and options indicators held steady during the 26.5% drop, a sign that the hardest part of the BTC correction may be over.
This week’s $11,000 drop occurred in only 32 hours and this is definitely a major milestone for the Bitcoin price (BTC).
Many conventional media perceived the correction as the beginning of a new bearish market, but the data simply doesn’t support that view.
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Bitcoin’s price may have been corrected by 26.5% as if it had fallen to re-test the $30,300 support, but it has since shown significant strength amidst record $160 billion in derivative volume.
Daily BTC futures volume, in USD. Source: coinalyze.net
Spot exchanges also surpassed their previous record set just three days ago on January 9th when BTC shot up to a new all-time high of USD 41,950. The incredible volume of USD 27.7 billion seen on January 11th was 60% higher than the previous peak.
Binance alone moved $9 billion at BTC, which is more than double the industry average seen in December 2020.
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The infamous 50% intraday drop on March 12, 2020 resulted in a volume of $8 billion in cash exchanges. To put things in perspective, Ether (ETH) moved a volume of USD 16 billion on January 11.
Despite the recent bearish price action and the $1.5 billion in long position liquidations this week, Bitcoin has recovered more than 13% from the $30.3 billion low.
Although the price didn’t manage to hold the USD 36,000 level seen in the early hours of January 12, investors appear relatively calm and trading volumes don’t point to a deeper correction.
GBTC still has a substantial premium
While this event may have scared off some shoppers, looking under the hood is a very healthy sign. Another factor to consider is that Grayscale’s GBTC funds added 72,950 BTCs in December, but suspended issuing new shares on December 24. Meanwhile, Bitcoin’s price nearly doubled from $23,200 to its high of $42,000.
The fund manager has now resumed its regular activity for most of its crypto-currency trusts, which raises the question of whether the institutional flow initiated can be attributed to the rising BTC share price. What is clear is that the interest and demand of institutional investors is still present. Although the Bitcoin price fell by 26.5%, the GBTC premium remained above 14%.
The premium of fixed date futures remained stable
Professional traders tend to dominate longer term futures contracts with established expiration dates. Therefore, by evaluating how much more expensive futures are compared to the regular spot market, a trader can determine how optimistic the market is. 3-month fixed date futures should generally be traded at a premium of 1.5% or more compared to regular spot exchanges.
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Every time this indicator disappears or enters negative territory, it is an alarming signal to start worrying. Such a situation, also known as backwardation, indicates that the market is becoming bearish.
The above chart shows that the futures premium remained above 3.5% during the storm, which is equivalent to an annualized level of 14.5% and indicates that there is optimism on the part of professional traders.
The bias of options is on the upside
Analyzing the sell/buy ratio will help determine if the recent downward price action contaminated Bitcoin’s upward posture among professional investors. The current level of bias provides a real-time indicator of fear and greed based on option pricing.
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Bias indicators will shift to the negative side when call options (neutral/bullish) are more expensive than equivalent put options. A 10% level indicates that call options are trading at a premium to the more bearish/neutral put options. On the other hand, a negative bias translates into a higher cost of downward protection, indicating a downward trend.