Bitcoin

Quiet! Bitcoin options data says $ 18,500 is not a local high

In the early hours of today Bitcoin (BTC) price peaked at $ 18,476 after an impressive bull run of 35% that appears to have started in early September.

This amazing movement This was followed by a correction to $ 17,000, a natural pullback. This adjustment led some investors to wonder if the current setup looks like the high of $ 13,850 made in July 2019.

BTC / USD pair in July 2019. Source: TradingView

On this occasion, After a similarly large rally, there was a 30% decline and then it took 14 months for Bitcoin to regain the $ 13,850 level. Coincidentally, there was a sudden sharp drop shortly after that local high, but the price eventually rose and stabilized near $ 12,800.

Quiet! Bitcoin options data says $ 18,500 is not a local high
Quiet! Bitcoin options data says $ 18,500 is not a local high

If something similar happened this time around, investors would expect a low of $ 13,000 for the current cycle. Aside from a sudden drop after a strong rally, What other indicators are mimicking the price movement in July 2019?

The first step is the analysis of the futures basic indicator, which can be interpreted as investor optimism. The basis is often referred to as the futures premium and measures the premium for longer-term futures contracts in relation to the current spot level (traditional markets).

Fixed month futures contracts generally trade at a low premium, which indicates that sellers are charging more money to delay the settlement of the contract. In healthy markets, futures must be traded at an annualized premium of 5% or more. This situation is known as contango.

Annualized basis for 3-month Bitcoin futures in July 2019. Source: Skew

There may have been excessive optimism as the base indicator hit 20% on June 23rd. However, during the 2019 price correction, the level remained very healthy.

The above chart can be interpreted as an absolute reluctance to reduce long positions. This move came despite a sudden fall to $ 2,000 followed by a 30% correction from the high.

Strange as it may seem Even the 30% decline from the $ 13,850 high did not lower the premium on futures contracts. The decline in the uptrend generally has a massive impact on the base indicator.

We fast forward to the current scenario and there is not a single instance of over-optimism by the same metric.

Annualized basis for 3-month Bitcoin futures in November 2020. Source: Skew

The graph above shows that immediately after the $ 18,500 high was made, the base indicator quickly fell below 10%. To further differentiate the current price move from the one in July 2019, two weeks before the peak, the futures premium was 0%, a clear sign that investors were in bearish sentiment.

This time, The lowest value in the past two weeks was 7%. This means that investors have maintained positive expectations for the past few months, while the market has seen an intense, fast and bullish run in July 2019.

Options traders weren’t as bullish before the rally

In order to better analyze the current market sentiment, investors should also consider the spreads of the options market. The 25% delta tilt indicator goes on the negative side when call options (neutral or bullish) are more expensive than similar put options. This metric generally ranges from -20% to + 20% and reflects current market sentiment.

25% slope of the 3-month Bitcoin options delta in June 2019. Source: Skew

Interestingly, Bitcoin saw an 80% bull run over the three weeks leading to the high of $ 13,850, but the options market didn’t seem prepared for it. At this point, the upside protection was trading with call options at the same premium as bearish put options.

We can therefore conclude that the options traders valued the same probability that there was a strong swing in either direction. This situation has recently been the case, as the indicator of the slope of the delta by 25% shows.

3-month bitcoin options delta 25% slope in November 2020. Source: Skew

In the last 30 days This indicator of sentiment on the options market signals an upward trend. Traders are unwilling to sell upside protection, causing the tilt indicator to hit an unprecedented -30%.

Since professional traders charge a high premium for bullish call options, we can conclude that sudden price dumping is far from their expectations.

Investors shouldn’t make decisions based solely on the interpretation of a single indicator that shows that options traders are currently overly optimistic. These traders may have been unprepared and therefore unwilling to take short positions.

Due to futures and options data, there are big differences between the July 2019 high and the current market high. This indicates that there is no indication that there will be a 30% decline in the next few days.

The views and opinions expressed here are solely those of darer and do not necessarily reflect the views of Cointelegraph. Every investment and business move is associated with risks. You must do your own research when making a decision.

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