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Traders are employing a number of methodologies to evaluate if the price of Bitcoin has bottomed, but on-chain activity and derivatives data suggest that the situation remains fragile.
Traders are employing a variety of methodologies to evaluate if the Bitcoin price has bottomed, but on-chain activity and derivatives data suggest that the situation is still fragile.
Has the price of Bitcoin reached its all-time low? According to @noshitcoins, derivatives and on-chain statistics indicate that additional drop is possible.
Since Bitcoin (BTC) began its 48 percent decline to $30,000 on May 12, traders have been attempting to time the much-anticipated trend reversal. The action resulted in the liquidation of $12 billion in futures long bets, and market confidence has remained considerably depressed to this day.
The community began hunting for trend reversal indicators everywhere, including technical patterns, US CPI inflation statistics, and Bitcoin exchange deposits. Some experts, for example, said that a higher high followed by a move over $40,000 would suffice.
We need to make a new Higher High to confirm a local bottom.
— Inmortal (@inmortalcrypto) May 24, 2021
However, Bitcoin managed to cross the $40,000 barrier two days later, although for only six hours. Other traders, on the other hand, believe that a retest of the $30,000 low is required before a rebound.
#Bitcoin $BTC #BTC is forming a Descending Broadening wedge here. It’s bullish but there are two possible scenarios.
Green: breaking the resistance and maintain the uptrend.
Red: retest the bottom of the wedge (~30k) and bounce from there. pic.twitter.com/8L26kQvf7X
— Johnny Woo | Never DM you for Money (@j0hnnyw00) May 25, 2021
Although those comments may be supported by actual facts or even logic, market prices do not always respond to external news or past chart patterns. Bitcoin investors, unlike stock investors, cannot depend on regularly used valuation multiples or even comparables.
A digital store of value is one use case, but it is also uncensorable and easily transferred. In addition, some users like Bitcoin’s peer-to-peer money convertibility outside of KYC-regulated exchanges. Another point to consider is the increase of Bitcoin portfolios by investors owing to the absence of connection with traditional financial assets.
This combination of varied and sometimes contradictory storylines causes impediments to predicting market potential, adoption status, and even gauging the efficacy of recent advancements.
Some will applaud Tesla and major corporations for amassing Bitcoin reserves, while others are unconcerned about who is holding BTC and will instead focus on the difficulties of scalability and fungibility.
Skew: the professional “fear and greed” indicator
When the contract expires, the buyer can acquire Bitcoin at a preset price. Put options, on the other hand, give purchasers with protection against price declines.
When market makers and professional traders are optimistic, call (buy) options command a greater premium. This trend will result in a negative 25% delta skew indication. Conversely, if downside protection is more expensive, the skew indicator will turn positive.
A 25% delta skew fluctuating between a negative 10% and a positive 10% is typically considered neutral. This balanced position lasted until May 16, when Bitcoin lost the important $47,000 support it had maintained for the previous 76 days.
As the markets worsened, so did the indicator’s 25 percent delta skew, and the cost of protection options increased. As a result, it is premature to declare the market bottom until the measure forms a more neutral pattern closer to the 5% level.
Active Bitcoin supply signals that weak hands need to cool off
Traders also keep track of the number of BTC transactions that have occurred recently. This indicator cannot be considered bullish or bearish on its own because it does not give information on the age of the addresses involved.
The 500 percent price gain between Oct. 1, 2020, and the $64,900 peak on April 14, 2021, resulted in a significant increase in supply moved in the months preceding the rally. When this indicator falls precipitously, it suggests that investors are no longer interested in joining at the current price level.
Over the last 30 days, there have been 2.2 million BTC transactions, which is much greater than levels recorded before October 2020.
As things stand now, traders should not believe Bitcoin has bottomed, at least not until the market no longer has important activity around the sub-$40,000 level.