There is no doubt that the past two months have been bad for Bitcoin (BTC), but during this period the derivatives indicators have been relatively neutral. This could be because cryptocurrencies have a strong volatility record, with even 55% corrections expected from all-time highs.
After two months of holding $ 30,000 support and eventually losing it on July 20, the futures and options premium declined. PlanB’s stock-to-flow pricing model also did not expect prices below $ 30,000 for the month of July. The model uses the stock-to-flow ratio, which is defined by the current number of bitcoins in circulation and the annual issue of newly mined coins.
On-chain data is positive, but derivative indicators say otherwise
On-chain analysis shows that the The monthly average of 36,000 bitcoins withdrawn from exchanges is often interpreted as an accumulation. However, this cursory analysis does not take into account the increasing use of tokenized Bitcoin in decentralized financial (DeFi) applications.
The graphic above shows that 40,660 bitcoins have been added to the Wrapped Bitcoin (WBTC) and RenBTC (RENBTC) protocols in the past three months. This number does not take into account the deposits in BlockFi, Nexo, Len and the numerous services that provide performance to users’ cryptocurrency deposits.
The withdrawal of bitcoins previously deposited on exchanges could be a sign that traders’ intent to sell in the short term is minimal. At the same time, however, it could also represent investors looking for higher returns in other sectors. In short, these coins could have been deposited on exchanges as collateral or as long-term savings.
As we have told you in the past, Derivative indicators that take a negative turn should outweigh assumptions about the bullish or bearish interpretation of on-chain data. You should evaluate in an initial analysis the premium for futures contracts,What is also known as the base.
This indicator enables investors to understand how bullish or bearish professional traders are as it measures the difference between monthly futures contracts and the current spot market price.
A neutral basis should be between 7% and 15% annualized. This price difference is due to sellers charging more money to postpone the liquidation. This situation is known as contango.
However, if that premium goes away or goes negative, it is a very bearish scenario that is called a. is known Backwardation. On July 20, the indicator held a negative level of 2.5% for more than twelve hours for the first time.
For the moment, professional traders take bearish stance after Bitcoin lost critical support at $ 30,000, but you can get more confirmation by looking at the options markets.
Professional traders look for hedging put options
Unlike futures contracts, options come in two different instruments. Call options provide the buyer with upward price protection and the put option is a right to sell Bitcoin at a fixed price in the future. Put options are generally used in neutral to bearish strategies.
Every time the proportion of put and call options increases, it means that the open interest in these neutral or bearish contracts is growing and is often viewed as a negative sign. The most recent reading of 0.66 continues to favor call options, but these instruments are slowly losing ground.
There are currently some signs that the futures and options markets are declining, and that has not been the case for the past two months. This suggests that even professional traders are lacking confidence after breaking the $ 30,000 support for the past 48 hours.
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