December will likely be remembered for the false breakout of Bitcoin (BTC) above $18,000, but aside from that brief breakout, its trajectory was entirely bearish. In fact, heThe downtrend currently offering resistance at $18,850 could push BTC price below $16,000 by mid-January.
A handful of reasons may explain the negative move, including the withdrawal of auditing firm Mazars Group from the cryptocurrency sector on December 16. The company previously handled proof-of-reserve audit services for Binance, KuCoin, and Crypto.com.
In addition, the bankruptcy of one of the largest cryptocurrency miners in the United States, Core Scientific, can be pointed out. The publicly traded company filed for Chapter 11 bankruptcy on December 21 due to rising energy costs, increasing competition, and a 2022 Bitcoin price crash.
The liquidity crisis at cryptocurrency lender and trading desk Genesis Global and its parent company, Digital Currency Group (DCG), has sparked fear among investors. More importantly, DCG manages the $10.5 billion Grayscale Bitcoin Investment Trust (GBTC). The fund is currently trading at a 47% discount to its NAV, partly due to investor speculation about its exposure to Genesis Global.
Negative pressure from the restrictive movement of the US Federal Reserve.
Aside from the bearish news, the macroeconomic scenario deteriorated after the US Federal Reserve raised interest rates by 50 basis points on December 14.. Analysts, including Jim Bianco, director of institutional research firm Bianco Research, said the monetary authority would maintain its tighter monetary policy in 2023.
Investors fear that Bitcoin could break below the current downtrend support at $16,100, triggering a sharp correction. TH3 Cryptologist, a veteran cryptocurrency trader, points to a falling wedge that could trigger a low of $14,000 in February 2023.
On daily TF I can see this shaping out to be a descending wedge with a potential bottom forming at 14k area. $btc #bitcoin pic.twitter.com/dpPVZZy5Vk
— TH3 Cryptologist (@TH3Cryptologist) December 29, 2022
On the daily TF, I can see that it is shaping up to be a falling wedge with a potential bottom forming in the 14k area.
But let’s also look at Bitcoin derivatives data to understand whether recent price action and news have impacted crypto investor sentiment.
Demand for Bitcoin buyers using leverage remains to be seen
Retail traders often avoid quarterly futures because of their price difference to spot markets. Meanwhile, professional traders prefer these instruments because they avoid the fluctuation of funding rates in a perpetual futures contract.
The annualized 3-month futures premium should trade between +4% and +8% in healthy markets to cover associated costs and risks. Therefore, when futures trade at a discount to regular spot markets, it shows a lack of buyer confidence in leverage, a bearish indicator.
The chart above shows that derivatives traders remain bearish as the Bitcoin futures premium remains negative. Even more worrisome is that not even the $18,000 rally on Dec. 14 was able to switch those sellers and market makers to leverage demand balanced between longs and shorts.
Still, the lack of buyer demand for leverage does not necessarily indicate that traders expect immediate adverse price action. For this reason, one must analyze Bitcoin options markets to exclude specific externalities of the futures instrument.
Options traders comfortable with downside risks
The 25% delta deviation is a telltale sign that market makers and arbitrage desks are overcharging for upside or downside protection.
In bear markets, option investors are more likely to see prices fall, causing the bias indicator to rise above 10%. On the other hand, bullish markets tend to push the bias indicator below -10%, which means that bearish puts are discounted.
The delta slope peaked at 23% on Dec. 29, indicating that options traders are not comfortable with downside risks.
With the 30-day delta slope sitting at 18%, both the options and futures markets point to professional traders fearing that the $16,100 support is likely to be tested.
Therefore, The reasons for the bearishness of investors are the continuation of the rise in interest rates, the absence of buyers’ demand for leverage, and the positioning of BTC options traders to the downside.
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