Has Bitcoin Bottomed Out? What Will Happen To the Cryptocurrency Market
The data on network activity and derivatives hint that the situation in the bitcoin market remains unstable. And it is difficult to determine if the price has bottomed out.
According to @noshitcoins, derivatives and on-chain data signals the possibility of further problems.
On May 12, Bitcoin (BTC) began a 48% correction to $ 30,000. The end result was the liquidation of $ 12 billion in long futures positions.
Traders began looking for signs of a trend reversal in technical models, US CPI inflation data, and deposits on the bitcoin exchange.
Some analysts said that a new high followed by a move above $ 40,000 would be sufficient. And other traders have come to the conclusion that retesting the $ 30,000 bottom is necessary before the rebound.
However, Bitcoin investors cannot rely on valuation multiples or even comparable metrics.
Of course, a digital repository of value is one option, but at the same time, it cannot be censored and easily transferred. In addition, some users value the peer-to-peer convertibility of bitcoin fiat money outside of KYC-regulated exchanges. Also worth mentioning is that investors are increasing their bitcoin portfolio due to the lack of correlation with the traditional financial assets.
Such amount of conflicting narratives present obstacles to modeling market potential, acceptance status, and measuring the effectiveness of recent developments.
It is possible to buy bitcoins at a fixed price after the expiration of the contract thanks to the call options. And the put options provide insurance for buyers and protect against falling prices.
When market makers and professional traders are bullish, they will demand a higher premium on call options. This trend will cause a negative delta deviation indicator of 25%. On the other hand, if it is more expensive to protect against losses, the skew indicator will turn positive.
A delta of 25%, fluctuating between negative 10% and positive 10%, is generally considered neutral. This balanced situation continued until May 16, when Bitcoin lost critical support of $ 47,000.
As the markets crashed, the delta deviation indicator rose by 25% and the value of defensive options rose sharply. But it is too early to call a market bottom before the indicator sets a more neutral pattern closer to the 5% level.
Traders also track the number of recently active BTC. But since this indicator does not provide information about the addresses involved, it cannot be called bullish or bearish.
The significant increase in BTC supply from October 2020 to April 2021 led to an outflow of investor interest in buying at old prices. There are currently 2.2 million BTC active in the last 30 days. This is significantly higher than the pre-October 2020 levels.
Given the current state of the market, traders should not gamble to bottom out bitcoin. Until there is no more relevant activity in the market associated with a level below $ 40,000, traders should not stimulate a depreciation.