Bitcoin Reclaims $32,000, Derivatives Indicators Still Show Weakness

Bitcoin prices rose 8.5% today, regaining the $32,000 mark, but derivatives data showed that professional traders are still worried.

There is no doubt that Bitcoin has been bearish over the past few months, but derivatives indicators have been relatively neutral throughout. This is likely because the cryptocurrency has a strong record of volatility, and even a 55% correction from its all-time high is expected.

After struggling to maintain the $30,000 support level for two months, it was finally breached on July 20, with futures premiums and options bias turning bearish.

On-chain analysis shows that an average of 36,000 Bitcoin is withdrawn from exchanges each month, which is often interpreted as accumulation.

The chart above shows that Wrapped Bitcoin (WBTC) and RenBTC (RENBTC) have added 40,660 BTC in the past three months. This number does not include BlockFi, Nexo, Len, and a variety of services that offer users yield on their crypto deposits.

The removal of Bitcoin previously stored on exchanges could be a sign that traders are less inclined to sell in the short term. However, at the same time, it could also represent investors seeking higher returns in other avenues.

As mentioned earlier, derivatives indicators turning negative should be taken more seriously than a bullish or bearish interpretation of on-chain data. In initial analysis, analysts should review the futures contract premium, also known as the basis.

The indicator can give investors an idea of ​​how bullish or bearish professional traders are as it measures the difference between the monthly futures contract and the current spot market price.

The neutral benchmark rate should be between 7% and 15% annualized. This spread is caused by sellers demanding more money to delay settlement, a situation known as contango.

However, when this premium fades or turns negative, it is a very bearish situation known as backwardation. July 20 was the first time the indicator stayed at the minus 2.5% level for more than 12 hours.

Professional traders may be leaning bearish after Bitcoin lost the critical $30,000 support level, but further confirmation can be obtained by looking at the options market.

Professional traders are looking for protective put options. Unlike futures contracts, options come in two different instruments. Call options offer buyers upside price protection, and put options are the right to sell Bitcoin at a fixed price in the future. Put options are often used in neutral to bearish strategies.

Whenever the put-call ratio increases, it means that open interest in these neutral to bearish contracts is increasing, which is usually interpreted as a negative sign. The latest reading of 0.66 still favors call options, but these instruments are gradually losing ground.

Currently, there is enough evidence to suggest that the futures and options markets are bearish, but this has not been the case for the past two months. This shows that even professional traders lack confidence after failing to hold the $30,000 support level in the past 48 hours.

But for some analysts, the situation is not as bad as it seems. In fact, they believe that Bitcoin is likely to hit a new high of $66,000 per coin by the end of this year. They also believe that Bitcoin will surpass the US dollar at some point.

“Some countries will use Bitcoin as their primary currency of choice. They will move to the ‘bankless’ model inherent in this ecosystem due to the fixed supply and ease of transfer,” technologist Joseph Raczynski said in a recent interview.

We’ve already seen examples of this in countries like El Salvador, which recently became the first country in history to make Bitcoin legal tender. While the country is still very dependent on the U.S. dollar, people can easily walk into a store with Bitcoin and use it to purchase items just like they would with fiat currency. Raczynski believes it’s only a matter of time before other countries follow in El Salvador’s footsteps.

While he and other analysts believe that Bitcoin has the potential to hit new all-time highs again before the end of the year, it could experience more declines before it eventually finds a stable floor. They predict that Bitcoin could easily fall to as low as $25,000 before things really begin to stabilize.