Originally published on: January 19, 2022
Bitcoin has been trading below $45,000 for a consecutive 14 days, currently sitting 40% lower than its all-time high of $69,000. This recent price action mirrors late September 2021 when Bitcoin remained stagnant for 11 days, trading 36% below its previous all-time high of $64,900.
To assess whether the current market conditions resemble late September, traders need to analyze key Bitcoin futures trading indicators. One crucial indicator is the Bitcoin futures contracts premium, also known as “basis.” Unlike perpetual contracts, fixed-calendar futures do not have a funding rate, leading to significant price differences from spot exchanges.
By examining the gap between futures and spot prices, traders can determine market sentiment levels. A high level of bullishness is typically indicated by a significant premium (basis) of 15% or higher on three-month futures contracts.
For instance, in early September, the basis rate ranged from 9% to 13%, signaling confidence. However, just before Bitcoin’s breakout above $45,000 in late September, the three-month futures premium dropped to 6.5%, indicating low investor confidence.
Currently, the Bitcoin three-month futures premium stands at 6.5%, with recent levels around 9% to 11%, reflecting mild optimism. This scenario bears similarities to late September 2021, preceding a 62% rally triggered by a breakout above $45,000.
Another essential metric to consider is the options market, specifically the 25% delta skew that compares call and put options. A positive delta skew signifies market fear, while a negative skew indicates bullish sentiment.
In late September 2021, the 25% delta skew hovered near 10%, indicating fear among options traders. However, the current delta skew shows neutrality, with a recent positive threshold of 8%, signaling mild bearishness.
As derivatives metrics indicate a resemblance to late September’s market conditions, where Bitcoin reversed a downtrend and rallied 62% in three weeks, traders are hopeful for a repeat pattern.
Will history repeat itself? Bitcoin bulls are keeping a close watch.
