Risk-reward situation for bulls due to Bitcoin’s current setup

A slight improvement in the stock market and the resilience of some key BTC price indicators give hope for a reversal for the bulls.

bitcoin

A slight improvement in the stock market and the resilience of some key BTC price indicators give hope for a reversal for the bulls.


The Bitcoin (BTC) chart has formed a symmetrical triangle that is currently holding within a narrow range of $28,900 to $30,900. The pattern has held for almost two weeks and is likely to extend for another two weeks before the price makes a more decisive move.

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For those unfamiliar with technical analysis, a symmetrical triangle can be bullish or bearish. In this sense, prices converge in a series of lower peaks and higher lows. The decisive moment is the support or resistance breakout when the market finally decides on a new trend. As a result, the price may break out in either direction.

According to Bitcoin derivatives data, investors are pricing in higher odds of a decline, but the recent improvement in the global economic outlook may come as a surprise to the bears.

Macro Situation Improves, BTC Miners Stay Busy

 

Macroeconomic conditions driven by the U.S. helped drive the cryptocurrency market higher on May 23, Cointelegraph reported. Before the market opened, U.S. President Joe Biden announced plans to cut trade tariffs with China, boosting investor morale.
 
According to the latest estimates, Bitcoin’s network difficulty will be reduced by 3.3% in the next automatic readjustment this week. The change will be the largest downward adjustment since July 2021, and it’s clear that bitcoin’s downward trend has challenged miners’ profitability.
 
Nonetheless, miners are showing no signs of capitulation, even though their wallet flows to exchanges reached a 30-day low on May 23, according to Glassnode, an on-chain analytics platform.
 
While miners’ sentiment and flows are important, traders should also track the positioning of whales and market markers in the futures and options markets.

Bitcoin Derivatives Indicators are Neutral to Bearish

Retail traders typically avoid quarterly futures because they have fixed settlement dates and price differences from the spot market. However, the biggest advantage of the contract is the absence of volatile funding rates; hence the prevalence of arbitrage desks and professional traders.
 
These fixed month contracts usually trade at a slightly higher price than the spot market because sellers demand more money to hold back settlement time. This situation is technically known as “contango” and is not exclusive to the cryptocurrency market. Therefore, in a healthy market, futures should trade at an annualized premium of 5% to 15%.
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According to the above data, Bitcoin’s underlying indicator has been below 4% since April 12. This reading is typical of a bear market, but it is encouraging that it has not deteriorated after the May 12 sell-off to $25,400.

To exclude externalities specific to futures instruments, traders must also analyze the bitcoin options market. a 25% delta offset is very useful because it shows when bitcoin arbitrage desks and market makers are overcharging for upside or downside protection.

If options investors fear a plunge in bitcoin prices, the skew indicator will move above 12%. On the other hand, the general excitement reflects a negative skew of 12%.

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 In addition, the recent 25.4% was the worst reading ever for the indicator.

On May 9, the skew indicator moved above 12% into “fear” levels as options traders overcharged for downside protection. In addition, the recent 25.4% was the worst reading ever for the indicator.

Be Brave When Most People Are Afraid

In short, the BTC options market is still under pressure, suggesting that professional traders are not confident about taking downside risk. Bitcoin’s futures premium has been somewhat resilient, but indicators show a lack of interest from leveraged long buyers.

Taking a bullish bet now may seem counterintuitive, but at the same time, an unexpected price pump would surprise professional traders. As such, it creates an interesting risk-reward scenario for bitcoin longs.

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