“Don’t fight the trend” is an old adage in the markets, and there are other variations of the phrase like “never catch a falling knife”. The bottom line is that traders shouldn’t try to anticipate trend reversals, or worse yet, try to improve their average price while losing money.
It doesn’t matter whether one is trading soybean futures, silver, stocks, or cryptocurrencies. Markets generally move in cycles, which can last from a few days to a few years. In the case of Bitcoin (BTC), it is difficult for anyone to justify a bullish case by looking at the chart below.
In the past 25 days, every attempt to break the downstream canal has been abruptly halted. Oddly enough, the trend points to less than $ 40,000 in mid-October, which happens to be the deadline for the U.S. Securities and Exchange Commission ruling on the ProShares Bitcoin ETF (October 18) and Invesco Bitcoin. ETF (October 19).
According to CoinShares’ weekly report, recent price action prompted institutional investors to enter the sixth consecutive week of influx. There were almost $ 100 million in admissions between September 20 and 24.
Experienced traders claim that Bitcoin needs to recover the support of $ 43,600 for the uptrend to resume. Meanwhile, on-chain data indicates a strong build-up, as the decline in the exchange supply has been dominant.
Perpetual futures contracts show traders are neutral to bearish
To assess investor sentiment, one should analyze the funding rate on perpetual contracts as they are the preferred instruments of retail traders. Unlike monthly contracts, perpetual futures contracts (reverse swaps) trade at a price very similar to regular spot exchanges.
The finance rate is automatically billed every eight hours by the longs (buyers) when they request more leverage. However, when the situation is reversed and the shorts (sellers) are over-leveraged, the finance rate becomes negative and they are the ones who pay the costs.
A “neutral” situation involves long leveraged by paying a nominal fee, fluctuating from 0% to 0.03% per eight hour period, which equates to 0.6% per week. Still, the chart above shows a slightly downtrend since September 13, when the finance rate was last seen above the 0.03% threshold.
Put-to-call ratio favors bulls, but the trend has changed
Unlike futures contracts, options are divided into two segments. Call (buy) options allow the buyer to acquire Bitcoin at a fixed price on the expiration date. Generally speaking, these are used either on neutral arbitrage trades or on bullish strategies.
Meanwhile, put (put) options are commonly used as protection against negative price fluctuations.
To understand how these competing forces are balanced, one must compare open interest calls and puts.
The indicator hit a low of 0.47 on August 29, reflecting the 50,000 BTC protection options stacked against the 104,000 BTC call (buy) options. Still, the spread narrowed as the use of neutral to bearish sell contracts began to gain traction after the September 24 monthly expiration.
Depending on the Bitcoin futures and options markets, it may seem premature to call a “bearish” period, but the past two weeks show absolutely no signs of optimism from derivative indicators. It looks like the bulls’ hope is hanging on to the ETF deadline acting as a trigger to break the current market structure.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of TSTIME. Every investment and trade move involves risk. You should do your own research before making a decision.