Bitcoin price weakens, but BTC derivatives remain healthy

As a seasoned researcher with over two decades of experience in the financial markets, I have witnessed numerous bull runs and market corrections. The current state of Bitcoin (BTC) is intriguing, to say the least. Despite the recent struggles to break the $98,000 barrier, the resilience demonstrated by derivatives markets suggests a healthy bullish demand and confidence in BTC’s continued bull run.

From November 25th to December 2nd, Bitcoin (BTC) failed to surge past $98,000, leaving investors disappointed even though it recorded a substantial 38% monthly increase. Market players are concerned that continued consolidation below the significant psychological level of $100,000 might fuel bearish tendencies, potentially driving down Bitcoin’s price.

The derivatives market indicates robustness, as traders are currently paying a 17% yearly premium for leveraged Bitcoin positions above its spot price. Although this is lower than the usual 40% during intense bull markets, it signifies steady bullish sentiment without suggesting extreme optimism.

As a researcher, I’ve observed an interesting trend in the Bitcoin market: Despite not yet surpassing its peak of $99,609 from Nov. 22, derivatives data indicates that traders remain confident. Yet, there are lingering doubts about the longevity of this buying spree, particularly when it comes to the aggressive purchases made by spot Bitcoin ETFs, MicroStrategy, and Marathon Digital. The question on everyone’s mind is, can this momentum be sustained?

From November 25th to December 1st, MicroStrategy bought approximately 15,400 Bitcoins, which cost them around $1.5 billion obtained from a stock sale. These purchases were made at an average price of roughly $95,976 each, raising their total Bitcoin holdings to about 402,100 coins, now worth approximately $38.4 billion – a significant increase of 64%.

Marathon Digital also procured approximately 6,484 Bitcoins from October 1st to November 30th at a total cost of over $600 million, with each coin averaging around $95,352. The company intends to issue $700 million in convertible senior notes as part of their strategy to acquire more Bitcoin and simultaneously retire existing debt.

It’s not entirely correct to say that institutional purchases are the only reason behind Bitcoin’s price stability. In fact, since November 18, spot ETFs have seen net inflows totaling $3.22 billion, as reported by Farside Investors. It’s worth noting that Bitcoin was trading above $90,000 before these inflows started, suggesting strong demand that extends beyond institutional investments in corporate balance sheets.

Bitcoin options and futures indicate market confidence

In simpler terms, the prices in the Bitcoin options market indicate a sense of optimism among large investors (whales) and arbitrage specialists. When they buy call options (options to buy Bitcoin), these cost 8% more than put options (options to sell Bitcoin). This is unusual, as normally, when traders are uncertain about Bitcoin’s price, they might opt for hedging by purchasing put options, causing the ratio to exceed 6%.

As a crypto investor, I’ve come to realize that while we might manage smaller positions compared to institutional players, our impact is undeniably significant. For example, the jaw-dropping 1,000% surge in Bitcoin price back in 2017 was mirrored by the Coinbase app skyrocketing in downloads and a peak in Google searches for “buy Bitcoin.” Ignoring the influence of average traders like myself would be quite myopic.

To accurately assess retail demand for Bitcoin, keeping an eye on perpetual contracts (essentially inverse swaps) is crucial. These contracts are settled every eight hours and closely follow the current Bitcoin spot price. The funding rate, employed to maintain balance between buyers and sellers who use leverage, provides a significant indication of market opinion.

Typically, buyers are charged a monthly funding rate that ranges from 0.5% to 2.1%. But during times of increased enthusiasm, this rate could surge to 6% or above. Currently, the 1.4% fee being paid by leveraged buyers falls within the average range. Last week’s peak of 3.5% was temporary and does not currently pose an immediate risk for liquidation.

Interpreting Bitcoin‘s failure to surpass $98,000 as a sign of weakness might not be accurate, considering the strong state of its derivatives market. Institutional and individual investors show faith in Bitcoin’s prolonged bullish trend. This optimism is further bolstered by increasing adoption among corporations and countries viewing Bitcoin as a shield against inflationary traditional currencies.

This piece serves as a source of general knowledge; it’s crucial to understand that it doesn’t provide legal or financial guidance. The perspectives, assumptions, and beliefs shared within this post belong solely to the author and may not align with those of CryptoMoon.

2024-12-03 00:11

Bitcoin options and futures indicate market confidence

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