Traders can rejoice now that Bitcoin price has ventured above $17,400, but it has been a long twenty-seven days since Bitcoin (BTC) last broke out of the $17,250 resistance.
On Dec. 13, after a two-week sideways move, Bitcoin rallied 6.5% towards $18,000 and while the current move still lacks strength, traders believe a retest of the $18,250 resistance is possible. .
To kick off the week, the S&P 500 index rose to its highest level in twenty-six days on January 9. Weak economic data had previously fueled investor expectations of slower interest rate hikes by the US Federal Reserve (FED) and on January 1. 12 Consumer Index Report (CPI) could lend some credibility to this expectation.
On January 6, German retail sales data showed a year-on-year contraction of 5.9% in November. In the United States, economic activity in the service sector contracted in December after 30 consecutive months of growth. The services PMI reading was 49.6%, with readings below 50% usually pointing to a weakening economy.
Investors eagerly await the release of the Consumer Price Index (CPI) on January 12, which is more likely to dictate bets on whether the Fed will raise interest rates by 0.25% or 0.50% in early February. Economists expect inflation to rise to 6.6% year-over-year in December, so a weaker-than-consensus CPI could further boost market performance.
Still, the impacts of a year-long bear market continue as digital asset manager Osprey Funds reportedly laid off most of its staff during the second half of 2022. The investment company offers crypto products for the brokerage accounts of its accredited investors, which include a trust.
Analysts should focus on Bitcoin derivatives to understand if the recent positive price action has finally turned crypto investor sentiment positive.
Retail traders often avoid quarterly futures due to the difference in prices from the spot markets. Meanwhile, professional traders prefer these instruments because they avoid the fluctuation of funding rates in a perpetual futures contract.
Two-month futures annualized premium should trade between +4% and +8% in healthy markets to cover costs and associated risks. Therefore, when futures trade below said range, it shows a lack of confidence from leveraged buyers, which is generally a bearish indicator.
The chart above shows positive momentum for the Bitcoin futures premium, which has recovered from a 3% discount on Dec. 30 to the current positive 1%. Although it is still in the neutral to bearish area, it represents less bearishness compared to Dec. 13, before the price of Bitcoin surged to $18,000. However, the demand for leveraged long positions at $17,000 is timid by the metric.
Before jumping to conclusions, traders should also analyze the Bitcoin options markets to exclude any externalities specific to the futures instrument.
Options price similar upside and downside risks
The 25% slope of the options delta is a telltale sign when market makers and arbitrage desks are overcharging for upside or downside protection.
In bear markets, option investors place higher odds of a price dump, causing the delta indicator to rise above 10%. On the other hand, bull markets tend to drive the indicator below -10%, which means bear put options are discounted.
The delta’s slope bottomed out at 8% on Jan. 9, indicating that options traders are pricing in similar upside and downside risks. More importantly, the current level is the lowest since November 8, 2022 or since the implosion of the FTX exchange.
Even if there is no appetite for leveraged longs using Bitcoin futures, whales and market makers are getting more comfortable with $17,000 as support.
Although there is no evidence that a rally to $18,250 is in the works, at least traders are less risk averse, according to derivatives data.
The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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