3 reasons Bitcoin’s drop to $ 56.5,000 might have been the local low


The first rule of Bitcoin (BTC) trading should be “expect the unexpected”. In the last year alone, there were five instances of daily gains of 20% or more, as well as five intraday withdrawals of 18%. Truth be told, volatility over the past 3 months has been relatively modest compared to recent peaks.

Historical annualized volatility of Bitcoin over 90 days. Source: TradingView

Whether they are multi-million dollar institutional fund managers or retail investors, novice Bitcoin traders are often fascinated by a 19% correction after a local high. Even more shocking to many is the fact that the current correction of $ 13,360 from the all-time high of $ 69,000 on November 10 took place over nine days.

The downward movement did not trigger alarming sell-offs

Cryptocurrency traders are notoriously known for their highly leveraged trades and in the past 4 days nearly $ 600 million worth of Bitcoin long (buy) futures have been liquidated. This might sound like a pretty decent number, but it is less than 2% of the total BTC futures markets.

Bitcoin futures are a pool of open interest. Source: Coinglass.com

The first evidence that the 19% drop to $ 56,000 marked a local low is the absence of a major sell-off event despite the large price movement. Had there been excessive leverage from buyers, a sign of an unhealthy market, open interest would have shown a sharp change, similar to that seen on September 7.

The options market risk gauge remained calm

To determine how worried professional traders are, investors should analyze the 25% delta asymmetry. This indicator provides a reliable view of the feeling of “fear and greed” by comparing similar call (buy) and sell (sell) options side by side.

This metric will turn positive when the premium of neutral to bearish put options is higher than that of similar risk calls. This situation is generally considered to be a “fear” scenario. The opposite trend signals an uptrend or “greed”.

30-day Bitcoin options 25% delta asymmetry. Source: Laevitas.ch

Values ​​between 7% and 7% are considered neutral, so nothing abnormal happened during the recent $ 56,000 support test. This indicator would have exceeded 10% if professional traders and arbitrage traders had detected higher risks of market collapse.

Margin traders are always long

Margin trading allows investors to borrow cryptocurrency to take advantage of their trading position, thereby increasing returns. For example, one can buy cryptocurrencies by borrowing Tether (USDT) and increasing their exposure. On the other hand, Bitcoin borrowers can only sell it by betting on the price drop.

Unlike futures contracts, the balance between long and short margins is not always equal.

OKEx USDT / BTC margin loan ratio. Source: OKEx

The chart above shows that traders have borrowed more USDT recently as the ratio fell from 7 on November 10 to the current 13. The data is bullish as the indicator favors stable borrowing by 13, which could reflect their positive exposure. at the price of Bitcoin.

All of the above indicators show resistance to the recent drop in BTC prices. As mentioned earlier, anything can happen in crypto, but derivatives data suggests $ 56,000 was the local bottom.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade move involves risk. You should do your own research before making a decision.


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