Bitcoin (
BTC
) continues to trade below its highest point in 2023, suggesting that investors may have underestimated the resistance at $44,000. However, this doesn’t mean that reaching $50,000 and beyond is impossible. In fact, it is more likely to happen. Despite a 6.9% drop, traders in Bitcoin derivatives remained optimistic. But is this optimism enough to justify further gains?
Although the recent $127 million liquidation of leveraged long Bitcoin futures on December 11 may seem significant, it actually represents less than 1% of the total open interest. However, it is undeniable that this liquidation triggered a 7% correction in less than 20 minutes.
While derivatives markets may have played a role in the short-term negative price movement, it is important to note that Bitcoin’s price increased by 4.2% in the six trading hours following its low of $40,200 on December 11. This suggests that the impact of liquidation orders had dissipated, disproving the idea that the crash was solely driven by futures markets.
To determine if Bitcoin whales and market makers are still bullish, traders should look at the Bitcoin futures premium, also known as the basis rate. In neutral markets, these contracts trade at a premium of 5% to 10% to account for their longer settlement period. Data shows that the BTC futures premium remained above the 10% neutral-to-bullish threshold despite the 9% intraday price drop on December 11. This indicates that there was no significant excess demand for shorts.
Traders should also analyze the options markets to gauge investor optimism after the correction. The 25% delta skew is a useful indicator to determine if there is excessive demand for upside or downside protection. The BTC options skew has been neutral since December 5, suggesting a balanced cost for both call and put options. While not as optimistic as the previous weeks, it shows resilience after the 6.1% correction.
When it comes to retail traders using leverage, the funding rate for perpetual contracts shows that there has been a modest increase in demand for leverage among long positions. However, this increase is not significant enough to cause concern for most traders.
The rally to $44,700 and subsequent correction to $41,300 appears to be primarily driven by the spot market. This is good news for Bitcoin bulls as it indicates that positive momentum hasn’t faded despite the price correction. It also reduces the likelihood of cascading liquidations due to excessive optimism tied to the expectation of a spot ETF approval.
It’s important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research before making any investment or trading decisions.