Traders are using various strategies to determine whether the Bitcoin price has bottomed, but on-chain activity and derivative data indicate that the situation is still unstable.
Has the Bitcoin price bottomed out? According to @noshitcoins, derivatives and on-chain data indicate that there may be further downside.
Since Bitcoin (Bitcoin) Adjusted its price by 48% to $30,000 on May 12. US$12 billion worth of long futures positions were liquidated, So far, the confidence of traders is still weakened.
The community began to look everywhere for signs of trend reversal, including technology models, U.S. CPI inflation data and Bitcoin exchange deposit. For example, some analysts pointed out that a higher high and then a rise above $40,000 is sufficient.
We need to reset a higher high to confirm the local bottom.
-Immortal (@inmortalcrypto) May 24, 2021
However, two days later, even though the move lasted less than six hours, Bitcoin managed to break through $40,000. At the same time, other traders inferred that the bottom of $30,000 needs to be retested before the rebound.
#Bitcoin $ BTC #BTC Here a descending widening wedge is formed. Bullish, but there are two possible scenarios.
Green: Break through resistance and maintain an upward trend.
Red: Retest the bottom of the wedge (~30k), then bounce from there. pic.twitter.com/8L26kQvf7X
—Wu Yusen | Never DM for money (@ j0hnnyw00) May 25, 2021
Although there may be empirical evidence and even logic to support these statements, market prices do not always respond to external news or the formation of previous charts. Unlike stocks, Bitcoin investors cannot rely on commonly used valuation multiples or even comparable prices.
Of course, digital store of value is a use case, but at the same time, it is uncensorable and easy to transfer. In addition, some users believe that Bitcoin’s peer-to-peer legal exchange rate is very high outside of KYC-regulated exchanges. Another factor to consider is the increase of investors in the Bitcoin portfolio due to lack of association with traditional financial assets.
This panacea of diverse and sometimes conflicting narratives creates obstacles for modeling market potential, adoption status, and even measuring the effectiveness of recent developments.
Some people will cheer for Tesla and the big companies that build Bitcoin reserves, while others will not care who owns BTC and instead focus on the challenges of scalability and fungibility.
Skewness: a professional “fear and greed” indicator
The call option allows the purchaser to obtain bitcoin at a fixed price when the contract expires. On the other hand, put options can provide insurance to purchasers and prevent prices from falling.
Whenever market makers and professional traders are bullish, they will demand higher call (buy) option premiums. This trend will result in a negative 25% incremental skew indicator. On the other hand, if the cost of downlink protection is higher, the skew index will become a positive number.
Usually the δ skew of 25% fluctuates between minus 10% and plus 10%. This balanced situation lasted until May 16, as Bitcoin lost its key support of $47,000, which had been maintained for 76 days.
As the market deteriorated, the 25% Delta skew indicator also deteriorated, and the cost of protective options soared. Therefore, before the indicator establishes a neutral pattern close to the 5% level, it seems premature to bottom the market.
Active Bitcoin supply signals indicate weak hands need to be cooled
Traders also monitor the number of BTCs that have been active recently. The indicator itself cannot be considered bullish or bearish because it does not provide information about the age of the addresses involved.
The 500% price rebound from October 1, 2020, and a peak of $64,900 on April 14, 2021, resulted in a substantial increase in supply in the months before the price increase. When the indicator drops sharply, it indicates that investors are no longer interested in participating in the current price level.
In the past 30 days, there are currently 2.2 million BTC active, which is much higher than the level before October 2020.
According to the current situation, traders should not let Bitcoin bottom out, at least until the market no longer engages in relevant activities around the level of less than $40,000.
The views and opinions expressed here are only Author Does not necessarily reflect the views of Cointelegraph. Every investment and trading action involves risks. When making a decision, you should conduct your own research.