When Bitcoin (BTC) tested the $ 17,580 low on December 11, investors remained relatively calm despite some analysts’ estimates. The week may have ended at the same level as it started, but the fundamentals of Bitcoin are healthier.
When the price of bitcoin drops sharply, some strong bearish analysis emerges, and while this can affect investment decisions of retail investors, professional traders know better. They avoid chaos and excessive pessimism caused by negative price fluctuations.
Bitcoin’s dominance continued its bullish trend last week, from 63.5% to 64.5%. The move is likely driven by the $ 100 million acquisition of MassMutual Insurance and the $ 650 million sale of MicroStrategy bonds.
The news seems to have instilled more confidence in investors who were skeptical about the possibility of a new $ 20,000 test.
Bitcoin has surpassed the top 15 altcoins, which fell 2.5% on average over the past week. However, overall trading volumes were disappointing compared to the previous month. This indicator will partially offset the recent decline of $ 17,580, as it signals distrust.
On the other hand, recent data also shows a moderate lack of interest at the current $ 19,100 level, but this is something to check during the week when there is usually more volume.
Institutional Investors Pile Up And Bitcoin Price Is Standardized
Cryptocurrency fund manager Grayscale Investments continued to actively add BTC to his portfolio of over $ 10.7 billion.
Over the last week, 14,050 BTC were added, for a total of 561,130 BTC. So it was another great week for the Grayscale Bitcoin Trust. A similar tension can be seen by analyzing the fund’s premium to the effective BTC each share owns, currently 0.00095116 BTC.
As shown above, the insurance premium has increased from 11% to 22% over the past seven days. On December 9, the index hit an 8% premium, but quickly recovered to 16%. Thus, it reflects a positive trend as it is above the 3-month average of 12%.
Ongoing urgent funding remained stable
Perpetual contracts, also known as reverse swaps, have a built-in rate that is usually charged every eight hours. Funding interest rates ensure that there are no currency risk imbalances. Although the open interest of buyers and sellers is always the same, the impact can be different.
When buyers (long positions) require more leverage, the funding rate becomes positive. Consequently, the fees are paid by the buyers. This problem is especially relevant during meat transactions, when there is usually a greater demand for long trades.
Strong prices above 2% per week signify strong optimism. This level is acceptable while in the market, but is a problem if the BTC price is sideways or in a downtrend.
In such cases, buyers with high leverage increase the likelihood of large settlements during a sudden drop in prices.
Constant funding rates for bitcoin futures. Source: data on digital assets.
Notice how despite Bitcoin’s weakness on December 11, the weekly funding rate managed to avoid negative territory. This data shows that both short (sell) and long (buy) traders use roughly the same influence.
This indicator can be considered neutral, since there is powder left on both sides to increase the effort.
The future award has become normal
Funding levels can lead to some distortions as it is the preferred instrument for retailers and is affected by excessive leverage as a result. On the other hand, professional traders tend to dominate long-term futures contracts with specific expiration dates.
A trader can measure the level of a trend by measuring how expensive a futures contract is compared to the regular spot market. Three-month fixed calendar futures contracts should generally be traded at a premium of 1.5% or higher over conventional spot exchanges.
When this indicator turns off or becomes negative, it is an alarming red flag. This position, also known as a reset, indicates that the market is on a downward trend.
The chart above shows that the index briefly touched an extreme optimism level of 5% on December 1, but was later revised to 2.5% as Bitcoin failed to overcome the $ 20,000 resistance.
The recent rise in the index to 4% indicates confidence in the recovery in the bitcoin price, which indicates the optimism of professional traders.
Ring mode / ratio selection
By measuring whether more activity is occurring through put (buy) or put (put) options, one can measure the overall market sentiment. Typically, call options are used for bullish strategies and put options are used for bearish strategies.