2 Key Bitcoin Trading Indicators Suggest BTC Is Poised for a 62% Rise

[ad_1]

Bitcoin (BTC) has been below $45,000 for 14 days and is currently 40% below the all-time high of $69,000. This move bears similarities to late September 2021, when the Bitcoin price was flat for 11 days and was 36% below the previous all-time high of $64,900 on April 14.

Bitcoin price on Coinbase, USD. Source: Trading View

To understand if the current price momentum is mimicking late September, traders should start by analyzing the Bitcoin futures premium, also known as the “base”. Unlike a perpetual contract, these fixed-timeframe futures do not have a funding rate, so their price will be very different from regular spot trades.

By measuring the spend gap between futures and the regular spot market, a trader can gauge the level of upside in the market. Excessive buyer optimism tends to cause the three-month futures contract to trade at an annualized premium of 15% or more (basis).

3-month Bitcoin futures premium in September 2021. Source: laevitas.ch

For example, earlier in September, the base rate ranged from 9% to 13%, indicating confidence, but on September 29, just before Bitcoin broke above $45,000, the 3-month futures premium was 6, 5%. Generally, readings below 5% are generally considered bearish, so a reading of 6.5% at the end of September meant that investors were showing low confidence.

Bitcoin 3 month futures premium. Source: laevitas.ch

When it comes to current market conditions, there are many similarities to September 2021, just before Bitcoin broke $45,000 and started a 62% rally. First, Bitcoin’s current 3-month futures premium stands at 6.5% and the indicator has recently been hovering between 9% and 11%, reflecting mild optimism.

Unexpected positive market movements occur when investors least expect them and that is precisely the scenario that is happening right now. To confirm whether this move was instrument specific, one should also analyze the options markets. The 25% delta skew compares equivalent call (buy) and sell (sell) options. The indicator will turn positive when “fear” prevails, as the protection premium of put options is higher than that of call options.

Related: Which Bear Market? Current BTC Price Drop Still Matches Previous Bitcoin Cycles, Analyst Says

The reverse occurs when market makers are bullish, causing the 25% delta bias to shift into the negative zone. Readings between minus 8% and plus 8% are generally considered neutral.

Deribit Bitcoin options 25% delta skew in September 2021. Source: laevitas.ch

The 25% delta bias ranged near 10% at the end of September 2021, indicating the distress of options traders. Market makers and arbitrage desks were overpricing protective (bearish) sell positions.

Options Deribit Bitcoin 25% delta skew. Source: laevitas.ch

According to the current 25% delta skew indicator, options traders are neutral. However, on January 10, the measure touched the positive threshold of 8%, signaling a slight decline.

Derivatives metrics show that current market conditions resemble late September when Bitcoin reversed a 24-day downtrend and initiated a 62% rally over the following three weeks.

Will this phenomenon repeat itself? Bitcoin bulls certainly hope so.

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

[ad_2]