With the price of Bitcoin (BTC) trying to hit a support of $ 37,000 on May 25, the recent lows of $ 30,000 were possibly the lowest.suggests a derivatives market indicator that has historically accurately predicted the cyclical lows of the BTC / USD pair after its bear cycles.
The last time he predicted a minimum was November 1st. After that, the cost of buying a Bitcoin rose from $ 13,771 to $ 64,899 on Coinbase.
Anatomy of a bullish indicator
The indicator, nicknamed “Moving Base”, mathematically represents the relative difference between the futures contract price and the spot price over an annual period.For example, if a Bitcoin contract is trading at a premium of 2.5% over its spot price on the three-month base chart, its annualized moving base is 10%.
In retrospect, assets are traded on the futures market at a discount or a premium. When an asset’s spot price is higher than its futures price, this is known as backwardation.On the other hand, When the spot rate trades below the futures rate typical of traditional financial markets, it represents the state of contango (premium).
Bitcoin futures markets tend to fluctuate between backwardation and contango. Extreme contango often signals an upper limit in a bull marketOn the other hand, Extreme backwardation helps find potential lows in a bear market.
For example, the Bitcoin futures market on OKEx saw a contango surge of over 3.5% in June 2019 and peaked at 6.8% in the same period that Bitcoin topped $ 11,000.However, the spot rate of the BTC / USD pair continued to rise until it hit $ 14,000. After that, the pair entered a multi-month bear market and finally bottomed near $ 3,100 in December 2019.
Ben Lilly, a crypto economist at Jarvis Labs, compared the chart value “Annualized BTC futures based on 3 months” with Bitcoin spot pricesWhen the former approaches or closes below 1%, the latter takes this as a signal to bottom and start a new bull cycle.
The BitMEX chart above shows several cases where the value of the moving base fell below 1% during Bitcoin’s bearish moves in the spot market.The cryptocurrency later rallied, a new bull cycle, before correcting again to find a new bottom just as the moving base slipped below 1%. Rinse and repeat.
For example, in March 2020, during the global market crash triggered by the coronavirus, backwardation in Bitcoin futures rose to just under 14%This would mark Bitcoin’s low on the spot market at around $ 3,858.
Bitcoin Futures Mobile Base starting May 25th
Lilly shared a bias chart showing the annualized moving base of BTC futures, which fell below 1% for the first time since November 2020.
“That looks promising to find a bottom.”Lilly noted in her newsletter.
“It goes back to the reason why we use financing fees so often. Because precisely when people think that cryptocurrencies are running out and going into the woodshed, they recover again.”
He added that it is a good time for Bitcoin spot traders to recover based solely on the underlying assets.although he stated that this does not mean taking leveraged long positions in the futures market.
The risks in the derivatives market were higher due to the lack of bullish trading. Lilly said liquidation pressures have not eased even after the USDC 6 billion market entry., a sign that merchants want to use dollar-linked stablecoins to buy cryptocurrencies like bitcoin.
“At the moment we are flying into no man’s land”he added.
The statements came when Bitcoin had an extremely short-term bias conflict and in previous sessions it saw sharp fluctuations in price within a day.At Monday’s session, the price of BTC was turned down by $ 40,000 of resistance.
At the moment, BTC is trying to find support for $ 37,000about 40% below the all-time high.