Traders use various strategies to determine if Bitcoin price has bottomed out. However, the data on activities and derivatives in the chain suggest that the situation remains precarious.
Has the Bitcoin price already bottomed out? According to @noshitcoins, derivatives and on-chain data signal that other drawbacks may be up for grabs.
Traders have been trying to time the much-anticipated trend reversal since Bitcoin (BTC) initiated its 48% correction to $ 30,000 on May 12. The move culminated in the liquidation of long futures positions valued at $ 12 billion and, to date, trader confidence remains somewhat subdued.
The community looked everywhere for signs of trend reversal, including technical patterns, US CPI inflation data, and Bitcoin exchange rate deposits. For example, some analysts said a higher high followed by a move above $ 40,000 would be enough.
We need to make a new higher high to confirm a local low.
If you reclaim 40,000, we can talk about a sustained return to 50,000. # Bitcoin pic.twitter.com/myeWXIYWpp
– Inmortal (@inmortalcrypto) May 24, 2021
However, two days later, Bitcoin managed to crack the $ 40,000, even though the move took no more than six hours. Meanwhile, other traders concluded the need to retest the $ 30,000 lows before a ricochet.
#Bitcoin $ BTC #BTC forms a descending widening wedge here. It’s bullish, but there are two possible scenarios.
Green: Break the resistance and maintain the uptrend.
Red: retest the bottom of the wedge (~ 30k) and jump off from there. pic.twitter.com/8L26kQvf7X
– Johnny Woo | DM you never for money (@ j0hnnyw00) May 25, 2021
While there may be empirical evidence or even logic to support these statements, market prices do not always respond to external news or previous chart formations. Unlike stocks, Bitcoin investors cannot rely on commonly used valuation multiples or even benchmarks.
Sure, a digital store of value is a use case, but at the same time it cannot be censored and is easily transferable. Additionally, some users appreciate Bitcoin’s peer-to-peer fiat convertibility outside of KYC regulated exchanges. Another factor to consider is investors expanding their Bitcoin portfolio due to the lack of correlation with traditional financial assets.
This panacea of diverse and sometimes conflicting narratives creates barriers to modeling market potential, adoption status, and even measuring the effectiveness of recent developments.
Some will be cheering Tesla and big companies building Bitcoin reserves, while others will care no less about who is holding BTC and instead focus on the challenges of scalability and fungibility.
Skew: the professional indicator of “fear and greed”
Call options allow the buyer to purchase Bitcoin at a fixed price when the contract expires. Put options, on the other hand, offer buyers insurance and protect against price drops.
Whenever market makers and professional traders are optimistic, they ask for a higher premium on demand (buy). This trend results in a negative delta skew indicator of 25%. On the other hand, if the downward protection is more expensive, the offset indicator becomes positive.
A 25% delta offset that fluctuates between negative 10% and positive 10% is usually considered neutral. That balanced situation lasted until May 16, when Bitcoin lost the critical support of $ 47,000 that had been held for 76 days.
As the markets deteriorated, the 25% delta skew indicator deteriorated and the cost of protection options increased. Therefore, until the metric establishes a more neutral pattern near the 5% level, it seems premature to identify the market bottom.
The active Bitcoin supply signals that weak hands need to cool off
Traders also monitor the number of BTC that have been active recently. This indicator cannot be considered bullish or bearish as it does not provide any information about how old the addresses involved are.
The 500% price rally from October 1, 2020 and the high of $ 64,900 on April 14, 2021 resulted in a significant spike in supply in the months leading up to the rally. If this metric drops sharply, it indicates that investors are no longer interested in participating at the current price level.
There are currently 2.2 million BTC active in the last 30 days, and this is significantly more than it was before October 2020.
As things stand now, traders shouldn’t feel that Bitcoin has bottomed out, at least until the market stops having relevant activity in the under $ 40,000 range.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.