Bitcoin (BTC) has a long history of setting local highs when expected market events occur. The recent Bitcoin Exchange Traded Fund (ETF) launch on October 19 was no different, causing a monthly rally of 53% to an all-time high of $ 67,000.
After the price briefly dipped below $ 60,000, investors seek to understand whether the 10% correction was healthy short-term profit-taking or the end of the bull run. To determine this, traders need to analyze previous BTC price activity to assess possible similarities.
The graphic above represents the day a New York Times headline announced that “Bitcoin Receives a Modest Nod from the Central Bank of China” in November 2013. At that time Yi Gang, Lieutenant Governor of People’s Bank of China (POBC), He said people could freely participate in the bitcoin market. He even mentioned a personal opinion suggesting a long-term constructive outlook for the digital currency.
That is also worth mentioning This positive media coverage on Chinese state television aired on October 28th and features the world’s first Bitcoin ATM in Vancouver.
Bearish events can also be expected
Bearish examples can also be found in the 12 years of Bitcoin price action. For example, the Chinese ban in April 2014 marked a five-month low.
On April 10th, 2014, Huobi and BTC Trade, the two largest cryptocurrency exchanges in China, announced that their business accounts with certain domestic banks would be closed within a week. Rumors have been circulating again since March of the same year, fueled by a statement by the Chinese media Caixin.
Other recent events were the CME Bitcoin futures launch on December 19, 2017, one day ahead of the infamous all-time high of $ 20,000. Another event that marked a local high it was Coinbase’s initial public offering on the Nasdaq when Bitcoin price hit $ 64,900. Both events are shown in the following graphic:
Note that all of the above events have been eagerly awaited by the market, although some did not have an exact announcement date. For example, the first Bitcoin futures ETF trading session on October 19 was preceded by a statement by SEC chairman Gary Gensler on August 3 that the regulator was ready to accept a request from BTC ETFs with CME derivatives.
Investors may have positioned themselves before the ProShares Bitcoin Strategy ETF debuted and a look at the BTC derivatives markets could provide more information.
The futures premium was not “excessive”
The futures premium, also known as the base rate, measures the price difference between the prices of futures contracts and the regular spot market. Quarterly futures are the preferred instruments of the whales and arbitration tables. Even if they may seem complicated to private customers due to their settlement date and the price difference to the spot markets, their greatest advantage is the lack of a fluctuating financing rate.
Some analysts have suggested that “Return of Contango” after the base rate had reached 17%, its highest level in 5 months.
to???? Dylan LeClair (@DylanLeClair_) October 20, 2021
In a normal situation, futures markets of all kinds (soybeans, SP 500, WTIL) are traded at a slightly higher price than the spot market. This is mainly due to the fact that the investor has to wait until the contract expires before collecting the debt, so that opportunity costs arise and the premium arises from this.
Suppose someone is conducting arbitrage with the aim of maximizing the funds held in dollars. This trader could buy a stablecoin and get a 12% annualized return using decentralized financial protocols (DeFi) or centralized cryptocurrency lending services. A 12% premium on the Bitcoin futures market should be considered a “neutral” rate for a market maker.
Excluding the short-lived 20% rise on October 21, the key rate remained below 17% after a 50% rally that month. By comparison, the futures premium rose to 49% on the eve of Coinbase stock’s launch. Anyone who describes the current scenario as too optimistic is therefore wrong.
Liquidation risks were also not “immediate”.
If buyers are extremely confident and accept a high premium for leverage with futures contracts, a 10-15% drop in price could result in cascading liquidations. However, the mere presence of an annualized premium of 40% or more does not necessarily imply an immediate downside risk as buyers can add margin to keep their positions open.
As the leading derivatives metric shows, a 10% decline from its all-time high of $ 67,000 on October 20th was not enough to cause signs of concern among professional traders as the base rate remained stable at a healthy 12% level.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you will need to do your own research when making a decision.