Bitcoin Price Flirts With $ 40,000, But Derivatives Data Still Bullish

The price of Bitcoin ( BTC ) has been facing a period of intense volatility since falling from a high of $ 52,950 on September 7 to a low...


The price of Bitcoin (BTC) has been facing a period of intense volatility since falling from a high of $ 52,950 on September 7 to a low of $ 42,800 just two hours later. More recently, the support of $ 45,000 was held for a few days despite intensive testing, which triggered a rise and fall of $ 3,400 on September 13th.

There is no doubt that shorts – traders betting on lower prices – have gained the upper hand since the $ 3.54 billion sell-off of long futures contracts (buyers) September 7.

MicroStrategy’s September 13 announcement that it added more than 5,050 Bitcoin at an average price of $ 48,099 was not enough to restore confidence, and the price of the cryptocurrency remained unchanged near $ 44,200.

While the impact of short selling may be felt, regulatory concerns are more likely to continue to suppress markets as the US Treasury Department has reportedly discussed potential regulation for private stablecoins, such as reported by Reuters on September 10.

The growing interest from regulators comes as the market capitalization of stablecoins fell from $ 37 billion in January to its current $ 125 billion. In addition, both Visa and Mastercard reiterated their interest in stablecoin solutions.

Whatever the reason for the current weakness in prices, derivative contracts have been showing bullish sentiment since August 7.

Professional traders have been bullish over the past five weeks

Quarterly Bitcoin futures are the preferred instruments of whales and arbitrage bureaus because they have the important advantage of not having fluctuating funding rates. However, these can seem complicated to retail traders due to their settlement date and the price difference compared to spot markets.

When traders go into perpetual contracts (reverse swaps), derivative exchanges charge a fee every eight hours depending on which side requires the most leverage. Meanwhile, fixed date expiration contracts usually trade at a premium on regular spot market exchanges to compensate for the late settlement.

Annualized premium for three-month Bitcoin futures contracts. Source: Laevitas

An annualized premium of 5-15% is expected in healthy markets, as money locked in these contracts could otherwise be used for lending opportunities. This situation is known as contango and occurs on almost all derivative instruments.

However, this indicator fades or turns negative during bear markets, causing a red flag known as a “swing”.

The chart above shows the premium (base rate) topped 8% on August 7 and has maintained this moderate uptrend ever since. So, the data is exceptionally healthy and shows virtually no lack of conviction, even with Bitcoin testing the below $ 44,000 level twice in the past 15 days.

Related: Regulatory and privacy concerns follow SEC threat to Coinbase

Open interest on futures remains healthy

The $ 3.54 billion derivative market liquidations on September 7 certainly hurt over-leveraged traders, but the open interest in Bitcoin futures is still healthy in the grand scheme of things.

Bitcoin futures are a pool of open interest in USD. Source: Bybt

Find out how the current $ 14.8 billion figure is 23% higher than the June and July average of $ 12 billion. This contradicts speculation that traders have been badly affected and are reluctant to create positions due to Bitcoin’s volatility or fears of an impending bearish event.

There should be no doubt, at least according to the futures markets, that investors are neutral to bullish despite the recent price correction. Sure, traders should watch out for important resistance levels, but so far $ 44,000 has held up.

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