Traders use various strategies to determine if the price of bitcoin has bottomed out, but chain activity and derivative data suggest that the situation remains uncertain.
Has the price of bitcoin bottomed out? According to @noshitcoins, derivatives and on-chain data indicate that another disadvantage could be prepared.
Traders are trying to time the much-anticipated reversal of the trend since bitcoin (BTC) launched a 48% correction to $ 30,000 on 12 May. This step culminated Liquidation of long futures positions worth $ 12 billionThe trader’s confidence remains somewhat subdued so far.
The community has begun to look everywhere for signs of reversal of trends, including technical models, data on CPI inflation in the United States and Deposits for the exchange of bitcoins. For example, some analysts said a higher maximum would suffice, followed by a move above $ 40,000.
We need to create a new Higher High to confirm the local bottom.
– Immortal (@inmortalcrypto) May 24, 2021
Two days later, however, Bitcoin managed to break $ 40,000, although the move did not take more than six hours. Other traders, meanwhile, have determined that a repeated $ 30,000 bottom test is required before rebounding.
#Bitcoin $ BTC # BTC here it forms the wedge of descending expansion. It’s bullish, but there are two possible scenarios.
Green: breaking resistance and maintaining the uptrend.
Red: retest the lower part of the wedge (~ 30k) and bounce off it. pic.twitter.com/8L26kQvf7X
– Johnny Woo | Never DM You for Money (@ j0hnnyw00) May 25, 2021
While there may be empirical evidence or even logic to support these claims, market prices do not always respond to external reports or previous chart formations. Unlike stocks, bitcoin investors cannot rely on commonly used valuation multiples or even comparisons.
Digital storage of value is certainly one use case, but at the same time it is uncensored and easily transferable. In addition, some users appreciate the Fiat convertibility of peer-to-peer bitcoins outside KYC-regulated exchanges. Another factor to consider is investors who are increasing their bitcoin portfolio due to insufficient correlation with traditional financial assets.
This panacea of diverse and sometimes conflicting stories creates obstacles to modeling market potential, the state of adoption, and even to measuring the effectiveness of recent developments.
Some will support Tesla and the large bitcoin reserve companies, while others will not care who holds the BTC and will instead focus on the challenges of scalability and substitutability.
Bevel: a professional indicator of “fear and greed”
Call options allow the buyer to get bitcoin at a fixed price when the contract expires. Purchase options, on the other hand, provide buyers with insurance and protect against falling prices.
Whenever market makers and professional traders tend to rise, they will demand higher premiums for calls (purchases). This trend is caused by a negative 25% delta skew indicator. On the other hand, if protection against negative impacts is more expensive, the skew indicator will become positive.
A 25% delta skew oscillating between a negative 10% and a positive 10% is usually considered neutral. This balanced situation lasted until May 16, when bitcoins lost critical support of $ 47,000, which lasted 76 days.
As markets deteriorated, the 25% delta skew also deteriorated and the cost of safeguards increased. Therefore, until the metric creates a more neutral formula approaching the 5% level, it seems premature to call the market bottom.
An active supply of bitcoins signals that weak hands must cool down
Traders also monitor the number of BTCs that have been active recently. This indicator in itself cannot be considered bull or bear, as it does not provide information on how old the addresses are.
The 500% price rally from October 1, 2020 and the peak of $ 64,900 on April 14, 2021 caused a substantial increase in supply shifted in the months before the rally. If this metric represents a sharp decline, it means that investors are no longer interested in participating in the current price level.
Currently, 2.2 million BTC is active in the last 30 days, which is significantly higher than before October 2020.
At present, traders should not be such that bitcoins have bottomed out, at least until the market no longer has relevant activity below the level of below $ 40,000.
The views and opinions expressed herein are those of an opinion author and does not necessarily reflect the views of the Cointelegraph. Every investment and business move involves risk. You should do your own research when making your decision.