Is bottom In? Data Shows Bitcoin Derivatives Entering the 'Bound' Zone

A key risk indicator for BTC options hitting a 6-month high, could signal that $32,930 is the bottom.

Is the bottom in?  Data shows Bitcoin derivatives entering the 'boundary zone'

Analysts love to make price predictions and it seems like 9 out of 10 times they are wrong. For example, how many times have analysts said “we’ll never see Bitcoin back to price X again,” only to see it plunge below that level a few months later?

It doesn’t matter how experienced or connected a person is in the industry. Bitcoin (BTC) 55% volatility must be taken seriously, and the impact of this on altcoins is often stronger in speculative-like movements.

For those unfamiliar with the case, on December 7, Zhu Su’s 3 Arrows Cash acquired $676.4 million worth of Ether (ETH) after its price dropped 20% in 48 hour. Zhu even went as far as to say that he would continue to buy “any panic devaluation,” despite admitting that Ethereum fees are not suitable for most users.

To understand whether bearish bets are still desirable and where professional traders stand, let’s take a look at Bitcoin futures and options market data.

Futures traders don’t want to sell short

The underlying indicator measures the difference between a long-term futures contract and the current spot market level. An annual premium of 5% to 15% is expected in healthy markets, and this spread is because sellers demand more money to withhold payments for longer.

On the other hand, a red alert occurs whenever this indicator fades or turns negative, a situation known as a “step back”.

Is the bottom in?  Data Shows Bitcoin Derivatives Entering the 7 Limit Zone
Basic interest rate of 3 months Bitcoin. Source:

Notice how the indicator holds the 5% threshold even though the price corrected 52% in 75 days. If professional traders are effectively entering bearish positions, the underlying rate will be close to or even negative. As a result, the data shows a lack of interest in short positions during this current correction period.

Options traders remain in the “fear” zone

To rule out external factors specific to futures, traders should also analyze the options markets. The 25% delta deviation compares call (buy) and put (sell) options similarly. The metric turns positive as fear prevails because the premium to protect puts is higher than that of similarly risky call options.

The opposite happens when greed is pervasive, causing the 25% delta deviation indicator to move into the negative zone.

Is the bottom in?  Data Shows Bitcoin Derivatives Entering the 9 . Boundary Zone
A 30-day Bitcoin option is 25% off. Source:

The 25% skew indicator moved into the “fear” zone when it moved above 10% on Jan. 21. That 17% peak was last seen in early July 2021, and oddly enough, Bitcoin was trades at $34,000.

This indicator can be interpreted as bearish when also considering that arbitrage desks and market makers are overcharging for bearish protection. However, this metric tends to be outdated and often predicts market bottoms. For example, just two weeks after the skew indicator peaked at 17% on July 5, the Bitcoin price bottomed out at $29,300.

Correlation with the traditional market is not too appropriate

It is worth noting that Bitcoin has been on a downtrend for the past 75 days and this was before the Federal Reserve’s tightening speech on December 15th. Furthermore, the correlation increased with the markets. Tradition does not explain why the S&P 500 index peaked on January 4, while Bitcoin has dropped 33% from its all-time high of $69,000.

Considering the bears’ lack of interest in BTC short-term below $40,000 and options traders ultimately investing, Bitcoin shows little room to the downside.

Furthermore, Bitcoin futures liquidations over the past week totaled $2.35 billion, which has significantly reduced buyer leverage. Of course, there is no guarantee that $32,930 will be the final bottom, but short sellers will likely wait for a rally before entering bearish positions.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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