Four key Bitcoin price indicators show investors are buying the dip

Editor’s note: This article comes from Lian Neican (ID: lianneican), author: Neicanjun, and is reprinted with permission from Odaily Planet Daily.

When Bitcoin tested a low of $17,580 on December 11, investors remained relatively calm despite some analysts issuing bearish forecasts. In the past two days, the price of Bitcoin has returned to above $19,000, which also shows that Bitcoin's fundamentals have become healthier.

Whenever the price of Bitcoin drops significantly, there is usually some clearly bearish analysis that emerges. While this may influence the investment decisions of retail investors, professional traders know better and will not be affected by the FUD and excessive pessimism caused by negative price fluctuations.

Over the past week, Bitcoin’s market dominance continued its upward trend, rising from 63.5% to 64.5%. This move was likely spurred by MassMutual’s $100 million acquisition of insurance company and MicroStrategy’s $650 million bond sale.

The news appears to have given further confidence to investors who believed a retest of $20,000 was possible.

While digital currencies showed an overall downward trend last week, Bitcoin outperformed the top 15 altcoins. The latter fell an average of 2.5% over the past week. However, overall volume was disappointing compared to the previous month. This indicator partially invalidates the recent low of $17,580 as it indicates a lack of confidence.

On the other hand, recent data also shows that the current $19,100 level is lacking in trading interest.

Institutional investors choose to buy BTC during sideways trading

Crypto fund manager Grayscale Investments continues to actively add BTC to their portfolio, with the value exceeding $10.7 billion.

Grayscale has added 14,050 BTC to its holdings over the past week, for a total of 561,130 BTC. Therefore, it has been another good week for the Grayscale Bitcoin Trust. Similar excitement can be seen by analyzing the fund’s premium over each valid BTC held, which currently stands at 0.00095116 BTC.

As shown in the above chart, the premium has increased from 11% to 22% over the past seven days. The indicator reached an 8% premium on December 9 but quickly recovered to 16%. Therefore, it reflects positive momentum as it stands above the quarterly average of 12%.

Perpetual futures funds remain stable

Perpetual contracts are also called inverse swaps, and their implicit interest rate is usually charged every 8 hours. The funding rate ensures that there is no exchange risk imbalance. Although the open positions of buyers and sellers are always matched, the leverage can be different.

The funding rate becomes positive when the buyer (long) is the one who demands more leverage. Therefore, the buyer will be the one paying the fees. This problem is especially true during bull runs, when there is usually more demand for longs.

A sustainable rate of over 2% per week translates into extreme optimism. This level is acceptable during a rising market, but problematic if BTC price moves sideways or is in a downtrend.

In situations like this, high leverage among buyers increases the likelihood of large-scale liquidations during unexpected price drops.

Note that the weekly funding rate managed to avoid negative territory despite Bitcoin’s downward move on December 11. This data suggests that short (sell) and long (buy) traders are using roughly the same amount of leverage.

Such an indicator can be considered neutral, as both parties have room to increase their bets.

Contango returns to normal

Funding rate can introduce some distortions as it is the preferred instrument for retail traders and, therefore, is subject to excessive leverage. On the other hand, professional traders tend to dominate long-term futures contracts with fixed expiration dates.

Traders can gauge their bullishness by measuring how high or low futures prices are relative to the regular spot market. 3-month fixed calendar futures should generally trade at a 1.5% or higher premium to regular spot exchanges.

Whenever this indicator turns negative, it is a red flag that should be raised. This situation is also called a divergence and indicates that the market is turning bearish.

The above chart shows that the indicator briefly hit an extremely bullish 5% on December 1, but later adjusted to 2.5% as Bitcoin failed to break through the $20,000 resistance level.

The indicator has recently surged to 4%, showing confidence in BTC price recovery and indicating optimism among professional traders.

Option put/call ratio

By measuring whether there is a higher proportion of call (buy) options or put (sell) options, we can measure the overall market sentiment. Generally speaking, bullish strategies use call options, while bearish strategies use put options.

The put-call ratio of 0.70 indicates that put open interest lags call open interest by 30%, so market sentiment is generally bullish.

Conversely, an indicator of 1.20 favors put options by 20% and can be considered bearish. It is important to note that this indicator aggregates the entire BTC options market, including all calendar months.

As Bitcoin price approaches $20,000, it is natural for investors to seek downside protection. As a result, the put-call ratio peaked at 0.70 on December 2. Despite the increase, it still favors the more bullish call options by 30%.

After this period of seeking protection, the indicator has returned to a healthy level of 0.64. Therefore, such an indicator indicates moderate bullishness.

Investors remain bullish

Overall, each of the key indicators discussed above remain stable within the expected range, especially considering the market’s recent pullback to $17,580.

With BTC holding above $19,000, investors are regaining confidence as the price is rebounding from every dip.

Currently, every indicator remains neutral or bullish, supporting the possibility that Bitcoin could set new all-time highs.