Market Analysis

Mar 11 2021

This month’s Ethereum options expiry suggests ETH’s upside is limited

To date, Ether (ETH) price has gained 85% in 2021, and options traders are still highly optimistic about the altcoin’s short-term performance.

The upcoming March 26 expiry holds over 96,000 ($172 million) call option contracts open interest between $2,240 and $3,520. Does a 25% or higher gain correctly reflect the current market sentiment, or are these traders simply over-optimistic about Ether’s odds?

*Ether price in USD. Source: TradingView*

Even though the effective price for the right to acquire Ether at a fixed price on March 26 is much lower, these options cost buyers at least $2 million. If Ether fails to increase by 25% from the current $1,808 price in two weeks, these $2,240 call options will be completely worthless.

*Ether options aggregate open interest,* *March 26.* *Source: Bybt*

As shown above, the call-put ratio is relatively balanced at 1.07, and the more bearish put options above the $1,800 strike are nonexistent. Meanwhile, bullish traders have crowded the scene above $2,240, partially because of their low price. The cost per option contract over the past couple of weeks ranged from $6 to $40.

Even if these call option holders previously bought while Ether was trading below $1,400, it would make sense to close the position and lock in profits. These options will lose value over time as the March 26 deadline arrives unless the price rises above their respective strike price.

Therefore, either these traders effectively expect Ether to break $2,240 in two weeks, or the options are being used in more complex strategies. Cointelegraph previously explained how $10,000 Ether call options are often used on calendar spreads.

The primary risk indicator for options is neutral

To assess traders’ optimism level after Ether marked a local $1,880 top on March 9, one should look at the 25% delta skew.

Whenever the options market is unwilling to take downside risk, the indicator shifts negatively. On the other hand, a positive 25% delta skew indicates traders are demanding less premium (risk) for upside protection.

*3-day Ether options 25% delta skew. Source: laevitas.ch*

The above chart shows the indicator ranging from 5 to negative 10, which is considered a neutral zone.

Had option traders effectively been bullish, the upside-protection call options would have been trading at a premium.

There’s a possibility, as previously stated, that investors are using a more complex strategy that involves different expiry dates or strikes. Still, if these options have been bought exclusively for upside leverage, it certainly doesn’t reflect the overall sentiment as measured by the skew indicator.

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.

This month’s Ethereum options expiry suggests ETH’s upside is limited

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Feb 08 2021

Rising Bitcoin futures funding rate signals traders expect $50,000 BTC

Today Bitcoin (BTC) price rallied to a new all-time high at $44,900 shortly after Tesla announced a $1.5 billion investment. This event triggered $555 million worth of shorts to be liquidated in two hours and it happened as Bitcoin futures open interest reached $13.7 billion, which is just 3% below its historical high.

These price moves drastically increased the cost of carrying long positions, mainly for those using perpetual futures. This indicator raised a yellow flag on how leveraged those investors are and their potential price impact.

*BTC futures open interest in USD. Source: Bybt.com*

As shown adove, the aggregate BTC futures open interest just reached a $15 billion all-time high.

Whenever unexpected positive news hits the market, it is natural for players to enter extreme leverage positions. This happens both for the short sellers, whose margins diminish due to losses, and the long buyers who tend to increase their positions.

Shorts with insufficient margin get liquidated as their positions are forcefully terminated and their leveraged decreases. On the other hand, the longs are profiting, thus increasing the position doesn’t increase their leverage as much.

After the initial pump it’s expected that the funding rate increases and the fees paid by longs to keep their perpetual futures (inverse swaps) open rises.

*BTC perpetual futures 8-hour funding rate. Source: Bybt.com*

As depicted above, the 8 hour fee charged to compensate for the eventual leverage imbalance between longs and shorts has just touched 0.25%. This rate is equivalent to 5.4% per week, which is quite significant for its holders.

One should note that even if Bitcoin continues to appreciate, as seen on Jan. 29, the funding rate tends to adjust itself. Two main reasons fueled this: leveraged buyers depositing more funds and arbitrage desks shorting the perpetual futures while simultaneously buying spot BTC.

A funding rate varying from 0.05% to 0.10% per 8 hours is standard and expected during a bull market. This indicator would signify a 4.6% to 9.4% monthly fee and wouldn’t be problematic to leveraged longs.

To understand how whales and arbitrage desks may have positioned themselves during this period, taking a closer look at the top traders’ long-to-short ratio at major exchanges is useful.

OKEx traders bought ahead of the pump

*Top traders BTC long/short ratio. Source: Bybt.com*

Binance top traders held a 33% net long position favoring longs ahead of the Feb. 8 rally, and this is slightly above their 26% 2-week average. As soon as the Tesla news hit the press, they increased longs and pushe the indicator to 46% which is its highest level in almost a month.

Huobi top traders, on the other hand, remained relatively unaffected by the news. Their net position stood at 0.74, meaning 26% favored shorts ahead of Feb. 8. Their current 28% net short position remains in line with the previous 2-week average.

Lastly, OKEx top traders increased their net longs from Feb. 6 to the early hours of Feb. 8, reaching a 14% net long position. Somehow correctly predicting the rally, those traders aggressively reduced net longs as BTC reached its all-time high.

The momentary hefty funding rate may be an inconvience for longs but currently there is no sign of excessive leverage from buyers. At least for those large market makers and arbitrage desks that compose most exchanges’ top traders.

This suggests that there is room for further price appreciation from Bitcoin.

Rising Bitcoin futures funding rate signals traders expect $50,000 BTC

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Jan 05 2021

5 reasons why Bitcoin price just reclaimed $33,000

Two weeks ago, few investors would have expected Bitcoin (BTC) price to rally any higher than $20,000. In fact, most had forecast a $30,000 BTC price by mid-2022 or late 2023 at best.

This means that many holders were likely caught by surprise as BTC price surged to $34,800 just 17 days after crossing the $20,000 mark.

Generally, analysts expect a sharp correction to follow Bitcoin’s 150% gain since November, but currently, there are no fundamental indicators that support this point of view.

*BTC/USD 4-hour chart. Source: TradingView*

Despite the recent bullish euphoria surrouning Bitcoin’s price action, the digital asset faced a significant drop as the price fell by $5,600 in 3 hours. Over $1.2 billion in liquidations followed that red candle, and typically this sort of move would raise alarm and lead analysts to forecast a potential trend reversal.

Each time Bitcoin makes a new high, investors expect some form of correction. Despite failing to break through the $34,500 resistance, the price quickly bounced from its sub- $28,000 dip on Jan. 4. This event might have monetarily spooked some buyers, but looking under the hood, it is a very bullish sign.

During the past week, Bitcoin’s dominance rallied to its highest level since March 2017, reaching 73%. Significant purchasing activity from institutional investors has been tied to the movement, including Grayscale’s addition of 72,950 BTC in December.

Moreover, investments from MicroStrategy, Ruffer Investment, MassMutual, and SkyBridge Capital are further indisputable evidence of the institutional inflow. Thus, BTC is becoming their preferred and almost exclusive investment option among cryptocurrencies.

Bitcoin’s dominance drop triggered a mini altcoin season

Regardless of the moves of professional traders, retail traders have an enormous impact on altcoins. Therefore, the Bitcoin rally created an opportunity for an alt season and DeFi-related tokens appear to be benifitting most.

*Top cryptocurrencies weekly performance. Source: Nomics*

In the past week, Bitcoin outperformed the top-15 altcoins, which climbed 9% on average. More importantly, the overall volume has skyrocketed, eliminating any doubts about weekends or holiday pumps with low market participation.

Grayscale’s GBTC premium has normalized

The Grayscale Bitcoin Trust (GBTC) premium peaked at 41% on Dec. 21 but has since adjusted to its 90-day average at 19%. It is worth noting that only qualified institutional clients are allowed to acquire shares directly from Grayscale. The remainder of the traders need to buy it on the secondary market and this is the reason for some of the distortions.

*Grayscale Bitcoin Trust premium. Source: TradingView and Grayscale*

This extraordinary level can be partially explained by the temporary suspension of new shares being issued. By halting the offer to institutional clients, any additional demand needs to be met by secondary sales, thus creating pressure for a larger premium.

Perpetual futures funding is holding steady

Professional traders tend to dominate longer-term futures contracts with set expiry dates. Thus, by measuring how much more expensive futures are versus the regular spot market, a trader can gauge their bullishness level. The 3-month fixed-calendar futures should usually trade with a 1.5% or higher premium versus regular spot exchanges.

Whenever this indicator fades or turns negative, this is an alarming red flag. Such a situation, also known as backwardation, indicates that the market is turning bearish.

*BTC perpetual futures funding rates. Source:* *Digital Assets Data*

The above chart shows that the indicator briefly held levels above 5%, flirting with overbought levels. Nevertheless, it has been holding above 3% despite the recent sub $28,000 dip on Jan. 4.

Therefore, the indicator has held above the minimum 1.5% threshold, indicating optimism from professional traders. This data is a slightly positive reading, as the recent unexpected swing has not shaken buyers.

On the other hand, if cascading liquidations had caused longs to deleverage this would have been worrisome.

Social network activity peaked

*BTC Twitter Users Activity vs. USD price. Source:* *TheTie*

Data from TheTie also shows that a recent BTC price increase occurred while tweets related to ‘Bitcoin’ reached the highest level seen since Dec. 2017.

While a significant bump in Twitter activity does not necessarily equal vigorous retail buying, it certainly helps gather more attention as the cryptocurrency continues its uptrend.

Options put-to-call ratio

The best way to gauge overall market sentiment is to measure whether more activity is going through call (buy) options or put (sell) options. Generally speaking, call options are used for bullish strategies, whereas put options are for bearish ones.

A 0.70 put-to-call ratio indicates that put options open interest lag the more bullish calls by 30% and is therefore bullish.

In contrast, a 1.20 indicator favors put options by 20%, which can be deemed bearish. One thing to note is that the metric aggregates the entire BTC options market, including all calendar months.

*BTC options put-to-call ratio. Source: Cryptorank.io*

Over the past week, investors have been leaning to downside protection strategies. As a result, the put-to-call ratio increased to 0.68, from 0.56 on Dec. 27. Therefore, the indicator has returned to its 3-month average, favoring the more bullish call options by 32%.

This data shows that investors optimism remains relatively steady after the 17% BTC price increase over the last week.

Overall, each of the five indicators discussed has sustained a neutral-to-bullish range. Professional traders have kept their bullish stance despite the Jan. 4 price swing and this is an encouraging outcome for bulls.

As BTC quickly recovered the $31,000 support, bulls showed theri confidence by adding positions after every dip. To conclude, there are no signs of exhaustion or excessive leverage from buyers.

5 reasons why Bitcoin price just reclaimed $33,000

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Dec 25 2020

Bitcoin price surged to $24.6K, but direction of next rally is unclear

The price of Bitcoin surpassed its all-time high on Christmas, reaching $24,681 on Binance. Following BTC’s strong rally, traders and analysts are exploring short-term bear and bull cases.

The market sentiment around Bitcoin remains overwhelmingly positive, but there are some concerns put forth by analysts in the foreseeable future and as a result, the next move is not a clear-cut one.

The funding rate of Bitcoin futures

Bitcoin (BTC) has rallied above $24,600 with a relatively small short squeeze. In the past four hours, only $95 million worth of short contracts were liquidated, suggesting that this rally has not been triggered by a short squeeze. A short squeeze occurs when many short contracts, or sell orders, get liquidated in the futures market. This happens when sell orders are overleveraged, which means traders are aggressively selling Bitcoin with borrowed capital.

Since the rally has not been triggered by a short squeeze, the futures market has been dominated by buyers and long contract holders. This trend led the funding rate across major Bitcoin futures exchanges to hit 0.1%. The funding rate is a mechanism that futures exchanges utilize to either incentivize long or short contract holders based on market sentiment. If there are more long contracts, the funding rate turns positive, which means buyers have to incentivize sellers.

The average funding rate of the Bitcoin futures contract on most exchanges is 0.01%. When the funding rate is at 0.01%, the trader has to pay 0.01% of their position as an incentive to short-sellers, who are the minority of the market. However, when the funding rate increases and traders who are buying Bitcoin have to pay large funding fees, it becomes less compelling to long Bitcoin.

Currently, as of Dec. 25, the funding rate of Bitcoin futures is hovering at 0.1%. As such, traders and strategists say that Bitcoin is at risk of a pullback because it has become less compelling to long BTC, at least in the short term. Mohit Sorout, the founding partner at Bitazu Capital, pointed to the extremely high funding rate of Bitcoin to suggest that a pullback is likely: “Would be utterly surprised if $btc just kept going up from here.”

Edward Morra, a cryptocurrency derivatives trader, echoed a similar sentiment. He added that many traders in the futures market started longing or buying Bitcoin after it hit around $24,400. Following the drop, he expects the funding rate to reset after a local correction. Morra tweeted: “deriv traders weren’t buying the dip lower but instead turning omega bullish at the top again, classic. Now, spot chads will flush them, send premiums and funding to baseline and continue after a local correction.”

However, some traders disagree that the futures funding rate is of the utmost importance during a strong bull run. Salsa Tekila, a pseudonymous Bitcoin trader, noted that the funding rate of BTC reached as high as 0.375% in the 2017 bull market. Considering that the price is much higher but arguably in an earlier stage of the rally, the trader said the funding rate alone might not be accurate to predict a top:

“Shorting ATH during price discovery bull trend based solely off of funding while hoping for a Wyckoff top seems extremely stupid to me. Funding was 0.375 (max) for weeks in 2017 bull trend.”

Considering the previous historical price cycle of Bitcoin, traders are more cautious to forecast a peak in the short term. This leads to the bull case for BTC in the foreseeable future, which revolves around the theory that during a bull market, historical trends might not repeat.

The bull case for Bitcoin in the near term

The short-term bull case for Bitcoin is based on two major factors: institutional accumulation and altcoin profits cycling into Bitcoin. Both trends are still ongoing, as inflows into Grayscale continue to increase, while altcoins lag behind BTC.

Ki Young Ju, CEO of CryptoQuant, said that he expects Bitcoin to correct when the institutional buying slows down. But, until that happens, which would be visible by assessing Grayscale’s assets under management and CME futures data, Ju said he would maintain his bullish bias: “When institutional buying stops, the price will be likely to fall sharply. The new ATH would be determined by institutional investors when they stopped buying $BTC. Till then, I’ll keep my bullish bias.”

According to Grayscale, the firm’s total assets under management hovers at $16.3 billion, with over $14 billion of it coming from the Grayscale Bitcoin Trust (GBTC). The AUM of GBTC is considered a metric to gauge the institutional sentiment around BTC because it’s often the first point of entry for institutions into the Bitcoin market, particularly in the United States.

The combination of the strong institutional accumulation of Bitcoin and the drying liquidity of the altcoin market buoys the short-term bull case for Bitcoin. Santiment, an on-chain market analysis firm, tweeted: “Liquidity has decreased rapidly in the vast majority of #crypto assets outside of $BTC and $ETH as the year is coming to a close.” This indicates that most of the interest in crypto is still concentrated around Bitcoin.

Based on exchange heatmaps from Material Indicators, the next major resistances for Bitcoin are at $25,000 and $30,000. There are stacked sell orders above the two levels, which could cause a temporary pullback once those resistance areas are reached. Until then, with high institutional demand and the altcoin market lagging behind, the sentiment around Bitcoin remains strong.

Bitcoin price surged to $24.6K, but direction of next rally is unclear

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Nov 10 2020

Bitcoin whale clusters signal $14.9K is the crucial level for BTC to hold

New data from Whalemap suggests that in order to maintain bullish momentum Bitcoin price needs to hold above the $14,914 level.

Whale clusters, like the bubbles shown on the chart below, form when high-net-worth investors purchase Bitcoin and do not move them. This indicates that whales accumulated BTC at that level and suggests that it will likely remain as a support area in the event of a correction.

As such, in the near term, it is crucial for Bitcoin to remain above $14,914 for a prolonged period. It would signify consolidation under a multiyear resistance at $16,000 and stability above a major support level.

*Bitcoin whale clusters. Source: Whalemap*

What’s keeping BTC price above $14,914?

Throughout the past week, Bitcoin has seen unusual price action and been quite volatile in a broad range.

From Nov. 6 to Nov. 9, BTC tested the $16,000 level twice and fell to as low as $14,350. This short-term volatility was likely connected a range of macro events, including the ‘contested’ U.S. election results.

There have been a number of big risks in the market since early November. The election risk noticeably benefited Bitcoin as investors sought out safe-haven assets. Then, Pfizer’s vaccine breakthrough became an unexpected variable, causing Bitcoin and gold to plunge.

Despite these uncertainties, Bitcoin has remained comfortably above $13,600, a level which Whalemap analysts pinpointed. They wrote:

“New levels that formed over the weekend! If we start ranging this should be a good guide to what the levels should be. Price should stay above ~$13,600 to continue the bull run.”

In the short term, the $13,600 to $14,914 range remains the most important for Bitcoin’s rally to continue. So far, the momentum of BTC has been relatively strong, considering that miners have been selling.

As Cointelegraph previously reported, CryptoQuant CEO Ki Young Ju said in an interview that miners have been selling Bitcoin. Based on the resilience of BTC, new buyer demand likely countered the selling pressure coming from miners.

Investors are at a crossroads

Bitcoin is seeing massive volatility because the market is uncertain. Some on-chain indicators are signaling that BTC is entering an oversold zone where investors could take profit. Philip Swift, a cryptocurrency analyst, wrote:

“Relative Unrealized Profit/Loss indicator: Has now entered the ‘Greed’ zone on this latest push up by #bitcoin. Sounds bad but actually, we can spend large parts of the bull cycle in this area. We are still early with plenty more room to the upside to go.”

But other fundamental metrics indicate that Bitcoin is still in the early phase of a bull run. For instance, HODLing activity is continuing to increase and research suggests that smart money has been fueling most of the uptrend.

The lack of clarity in the direction of Bitcoin is being shown by both the unusual price action and the mixed messages of on-chain data points. Nonetheless, as long as the top cryptocurrency stays above $14,914, at least In the short term, the outlook remains cautiously optimistic.

Bitcoin whale clusters signal $14.9K is the crucial level for BTC to hold

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