The lack of cascade liquidations, the 25 percent delta skew, and the margin lending ratio all point to a $56,500 low for Bitcoin.
“Expect the unexpected” should be the first rule of Bitcoin (BTC) trading. There have been five instances of 20 percent or more daily gains in the last year, as well as five intraday 18 percent drawdowns. To be honest, compared to recent peaks, the volatility over the last three months has been rather low.
Traders new to Bitcoin, whether multibillion-dollar institutional fund managers or ordinary investors are often enthralled by a 19 percent drop following a local top. Many people are even more surprised by the fact that the current $13,360 correction from the all-time high of $69,000 on November 10 took place over nine days.
The Downside Move Did Not Trigger Alarming-Raising Liquidations
Cryptocurrency traders are infamous for using huge leverage, and roughly $600 million worth of long (buy) Bitcoin futures contracts were liquidated in just four days. Although this appears to be a respectable figure, it represents less than 2% of the total BTC futures markets.
The lack of a substantial liquidation event despite the strong price fall is the first indication that the 19 percent decline to $56,000 indicated a local bottom. If there was considerable buyer leverage at play, which is an indication of an unhealthy market, open interest would have changed abruptly, similar to what happened on Sept. 7.
The Options Markets’ Risk Gauge Remained Calm
Investors can look at the 25 percent delta skew to see how concerned professional traders are. By comparing similar call (buy) and put (sell) options side by side, this indicator provides a trustworthy picture into the “fear and greed” attitude.
When the premium for neutral-to-bearish put options is larger than the premium for similar-risk call options, this indicator becomes positive. This is commonly referred to as a “fear” scenario. Bullishness or “greed” is shown by the opposite tendency.
Because values between -7 percent and -7 percent are considered neutral, nothing unusual happened during the last $56,000 support test. If pro traders and arbitrage traders had been alerted, this indicator would have risen above 10%.
Margin Traders Are Still Going Long
Margin trading allows investors to borrow bitcoin to increase the size of their trading position and thus their profits. To buy cryptocurrencies, for example, one can borrow Tether (USDT) and increase their exposure. Borrowers of Bitcoin, on the other hand, can only short it because they are betting on the price falling.
The balance between margin longs and shorts isn’t always matched, unlike futures contracts.
The accompanying chart illustrates that traders have recently been borrowing more USDT, as the ratio has risen from 7 on November 10 to the present 13. Because the indicator favors stable coin borrowing by 13 times, the data is bullish. This could be due to their positive exposure to the Bitcoin price.
In the face of the current BTC price decline, all of the above indications demonstrate resilience. Anything can happen in crypto, as previously stated, but derivatives data suggests that $56,000 was the local low.