The first rule for trading Bitcoin (BTC) should be “expect the unexpected.” In the last year alone, there have been five cases of 20% or higher daily gains, as well as five intraday 18% withdrawals. Truth be told, volatility over the past 3 months has been relatively modest compared to recent peaks.
Whether it is multi-million dollar institutional fund managers or retail investors, traders new to Bitcoin are often fascinated by a 19% correction after a local peak. Even more shocking to many is the fact that the current $ 13,360 correction from the November 10 $ 69,000 all-time high took place over nine days.
Downward pulls did not trigger alarming liquidations
Cryptocurrency traders are notoriously known for high leverage trading, and over the last 4 days, long (buy) Bitcoin futures contracts for nearly $ 600 million were liquidated. That may sound like a decent enough number, but it represents less than 2% of total BTC futures markets.
The first evidence that the 19% drop to $ 56,000 marked a local bottom is the lack of a significant liquidation event despite the sharp price movement. Had there been excessive buyer leverage at stake, a sign of an unhealthy market, the open interest would have shown an abrupt change, similar to the one seen on 7 September.
The risk targets of the option markets remained calm
To determine how concerned professional traders are, investors should analyze the 25% delta skew. This indicator provides a reliable overview of “fear and greed” by comparing similar call (buy) and sell (sell) options side by side.
This metric becomes positive when the neutral-to-bearish put option premium is higher than call options with similar risk. This situation is usually considered a “fear scenario”. The opposite trend signals bullishness or “greed”.
Values between negative 7% and positive 7% are considered neutral, so nothing out of the ordinary happened during the last $ 56,000 support test. This indicator would have risen above 10% if pro traders and arbitrage traders had discovered higher risk of a market collapse.
Margin traders are still going strong
Margin trading allows investors to borrow cryptocurrency to take advantage of their trading position, which increases returns. For example, one can buy cryptocurrencies by borrowing Tether (USDT) and increasing their exposure. On the other hand, Bitcoin borrowers can only short it as they bet on the price drop.
Unlike futures contracts, the balance between margin longs and shorts is not always matched.
The chart above shows that traders have borrowed more USDT recently as the ratio rose from 7 on November 10 to the current 13. The data leans bullish because the indicator favors stablecoin loans 13 times so this may reflect their positive exposure to Bitcoin -price.
All of the above indicators show resilience to the recent BTC price decline. As mentioned earlier, anything can happen in crypto, but derivative data suggests that $ 56,000 was the local bottom.
The views and opinions expressed here are solely those author and does not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.