Traders are currently using different methods to determine whether the price of Bitcoin has bottomed. However, on-chain activity and derivatives data indicate that situation is still precarious.
Has the price of bitcoin bottomed yet? According to @noshitcoins, derivatives and on-chain data indicate that further downside could be in store. Traders have been striving to time the much-expected trend reversal ever since Bitcoin (BTC) initiated its 48% correction to $30,000 on May 12.
This move culminated with $12 billion worth of futures long positions being liquidated, and currently, trader’s confidence remains somehow dampened. The community started to look everywhere for the trend reversal signs, including technical patterns, Bitcoin exchange deposits, and United States CPI inflation data. For instance, some of the analysts said that 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 bottom.
— Inmortal (@inmortalcrypto) May 24, 2021
Nonetheless, two days later, bitcoin managed to rise above the $40,000 mark, although this move lasted barely six hours. In the meantime, the other traders inferred that a retest of the $30,000 bottom is required before a bounce.
#Bitcoin $BTC #BTC is forming a Descending Broadening wedge here. It’s bullish but there are two possible scenarios.
Green: breaking the resistance and maintain the uptrend.
Red: retest the bottom of the wedge (~30k) and bounce from there. pic.twitter.com/8L26kQvf7X
— Johnny Woo | Never DM you for Money (@j0hnnyw00) May 25, 2021
Even though there might be empirical evidence and logic backing to these statements, market prices do not always react to the external news or previous chart formations. Unlike the stock markets, bitcoin investors cannot rely on the commonly used valuation multiples or even the comparables.
A digital store of value is one of the notable use cases, but concurrently, it is uncensorable and readily transferable. Additionally, some of the users value BTC’s peer-to-peer fiat convertibility outside of KYC-regulated exchanges. One other factor that needs consideration is the investors who are increasing their BTC portfolio due to the absence of any correlation with the traditional financial assets.
The panacea of diverse and frequently conflicting narratives creates some barriers for modeling the market’s potential, adoption status, and in some cases it measures the effectiveness of recent developments. Some people cheer for Tesla and other large corporations building up bitcoin reserves, while others could not care less about who is holding bitcoin and instead focus on the challenges of fungibility and scalability.
The ‘Fear And Greed’ Indicator
Call options enable the buyer to get BTC at a fixed price whenever the contract expires. On the other hand, put options offer insurance for the buyers and protect against any price drops.
When the market makers and professional traders lean bullish, they demand a higher premium on the call/buy options. That trend causes a negative 25% delta skew indicator. On the other hand, in case the downside protection is more expensive, the skew indicator becomes positive.
A 25% delta skew that is oscillating between a negative 10% and a positive 10% is normally seen as neutral. The balanced situation held until May 16, as BTC lost the important $47,000 support that had held strongly for 76 consecutive days.
As the markets continued to sink, so did the 25% delta skew indicator, and the cost of protective options surged. Thus, until the metric manages to establish a more neutral trend near the 5% level, it appears to be premature to call the market bottom.
Active BTC Supply Indicates That Weak Hands Need To Cool Down
Traders are currently monitoring the total number of bitcoins that have been active lately. The indicator cannot be considered to be bullish or bearish by itself since it does not offer information on how old the involved addresses are.
The 500% price surge from October 1, 2021, to the $64,900 peak on April 14, 2021, resulted in a massive surge in the supply moved during the months before the rally. When the metric presents a steep decrease, it shows that the investors are not interested in participating at the current price level.
Today, there are around 2.2 million BTC active in the last 30 days and that is considerably higher compared to the levels seen before October 2021. As things stand currently, the traders should not be so sure that bitcoin has bottomed, at least until the market no longer has any relevant activity that is surrounding the sub-$40,000 level.