“Do not fight the trend” is an old saying in the markets, there are other variants of the expression, such as “Do not take the falling knife”. The point is, traders should not try to predict a trend reversal, or worse, try to improve the average price while losing money.
It does not matter if you are trading soybeans, silver futures, stocks or cryptocurrencies. Markets usually move in cycles that can last from a few days to several years. When it comes to Bitcoin (BTC), it is difficult for anyone to justify a bullish alternative by looking at the chart below.
Bitcoin price in USD on Coinbase. Source: TradingView
During the last 25 days, all attempts to break through the sinking canal have been abruptly interrupted. Ironically, by mid-October, by the SEC decision deadline for Bitcoin ETF ProShares (October 18) and Bitcoin ETF Invesco (October 19), the trend will fall below $ 40,000.
According to CoinShare’s weekly report, the recent price movement has forced institutional investors to invest for the sixth week in a row. In the period from 20 to 24 September, there was an inflow of almost 100 million dollars.
Experienced traders claim that Bitcoin needs to restore $ 43,600 support to resume trend trends. Meanwhile, the chain data indicate a significant build-up as low supply from the stock exchange prevailed.
Eternal futures contracts show traders who are bearish neutral
To measure investors’ sentiment, the level of financing for perpetual contracts should be analyzed, as they are preferred instruments for retailers. In contrast to monthly contracts, perpetual futures contracts (reverse swaps) are traded at a price similar to regular spot exchanges.
The financing rate is automatically charged every eight hours for long-term contracts (buyers) when more influence is required. But when the situation is reversed and the short-term debt (sellers) increases excessively, the financing rate becomes negative, and it is they who pay the commission.
8 hour financing rate for bitcoin futures. Source: Bybt.com
The “neutral” position includes influence, for which a small commission is paid, from 0% to 0.03% every eight hours, which is 0.6% per week. However, the chart above shows a slight downward trend since 13 September, when the funding rate last exceeded the threshold of 0.03%.
The relationship between purchase and purchase is in favor of the bulls, but the trend has changed.
Unlike futures contracts, options are divided into two parts. Buy (put) options allow the buyer to receive bitcoins at a fixed price on the expiration date. They are usually used in neutral arbitrage or bullish strategies.
Meanwhile, put (call) options are commonly used to protect against negative price fluctuations.
To understand how these competing forces are balanced, conversations must be compared and choices made with open interest.
Bitcoin options allow for buying interest. Source: Laevitas.ch
On August 29, the index reached a low of 0.47, reflecting a hedged position of 50,000 BTC against 104,000 BTC options (buy). However, the gap narrows as neutral to bearish sales contracts begin to pick up after a month-end of September 24.
According to the bitcoin futures and options markets, it may seem too early to call a “downturn” period, but the last two weeks have not shown any bullish signs at all on the derivatives indices. It looks like the bulls are sticking to the ETF deadline, which acts as a trigger to disrupt the current market structure.