Traders are using a variety of strategies to determine if the bitcoin price has bottomed out, but on-chain activity and derivatives data suggest that the situation remains volatile.
Has the Bitcoin price bottomed out? According to noshitcoins, derivatives and on-chain data suggest that further declines are likely ahead.
Traders have been trying to time a much-anticipated trend reversal since Bitcoin made a 48% correction to $30,000 on May 12. The move has seen $12 billion worth of long futures positions liquidated. So far, trader confidence is still somewhat shaken.
The community has started looking around for signs of a trend reversal, including technical patterns, U.S. CPI inflation data and exchange-traded bitcoin deposits. For example, some analysts have said that another rise above $40,000 at the highs would be enough.
We need to create a new higher high to confirm a partial bottom.
A recovery of $40,000 would allow us to start talking about a sustained return to $50,000.
-Inmortal (@inmortalcrypto) May 24, 2021
However, two days later, Bitcoin managed to break above $40,000, although the move didn’t last more than six hours. Meanwhile, other traders deduced that a retest of the $30,000 bottom was needed before the rally.
Bitcoin has formed a falling and expanding wedge here. It is bullish, but there are two possible scenarios.
Green: Break through resistance and stay in an uptrend.
Red: Retests the bottom of the wedge (around $30,000) and bounces from there.
- Johnny Woo | Never DM you for Money (@j0hnnyw00) May 25, 2021
While there may be empirical evidence or even logical support for these claims, market prices don’t always react to external news or previous chart patterns. Unlike stocks, bitcoin investors cannot rely on commonly used valuation multiples or even comparative data.
Of course, digital value storage is a use case, but at the same time, it is uncensored and easily transferable. In addition, some users value bitcoin’s ability to be exchanged peer-to-peer for fiat outside of KYC-regulated exchanges. Another factor to consider is that investors are increasing their bitcoin portfolios due to the lack of correlation with traditional financial assets.
This diverse and sometimes conflicting narrative is a panacea that creates obstacles to developing market potential, shaping adoption status, and even measuring the effectiveness of recent developments.
Some will cheer for Tesla and large companies to build bitcoin reserves, while others are less concerned with who holds bitcoin and more focused on the challenges of scalability and fungibility.
Skew: The Professional “Fear and Greed” Indicator
A call option allows a buyer to buy bitcoin at a fixed price when the contract expires. Put options, on the other hand, provide buyers with insurance against price declines.
Whenever market makers and professional traders tend to be bullish, they will demand a higher premium for the call (buy) option. This tendency will result in a negative 25% delta skew indicator. On the other hand, if the cost of downside protection is higher, the skew indicator will become positive.
Bitcoin 30 day options 25% delta skew Source: laevitas.ch
The 25% delta skew oscillates between minus 10% and plus 10% and is usually considered neutral. This equilibrium held until May 16, as bitcoin lost the critical $47,000 support that had held for 76 days.
As the market deteriorated, so did the 25% delta skew indicator and the cost of protective options spiked. Therefore, it seems premature to call a market bottom until the indicator establishes a neutral pattern closer to the 5% level.
Active Bitcoin Supply Signals Weak Hands Need to Calm Down
Traders also monitor the amount of BTC that has been active recently. The indicator itself cannot be considered bullish or bearish as it does not provide information on how old the addresses involved are.
Active supply with at least one trade in the 30-day period tracked Source: CoinMetrics
The 500% price increase from October 1, 2020, and the $64,900 peak on April 14, 2021, resulted in a significant increase in supply in the months leading up to the rise. When this indicator shows a sharp decline, it indicates that investors are no longer interested in participating at current price levels.
Currently, there are 2.2 million BTC active in the last 30 days, which is significantly higher than the level prior to October 2020.
From the current situation, traders should not assume that Bitcoin has bottomed out in this way, at least until there is no longer any relevant activity in the market around the sub-$40,000 level.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/two-indicators-show-bitcoin-price-hasnt-hit-bottom-yet/
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