Bitcoin (BTC) has been struggling to break through the $47,000 resistance and even with the April 6 drop below $44,000, there is still mounting evidence that the market structure is healthy.
On December 3, 2021, Bitcoin started a 25.6% correction that lasted 18 hours and culminated with a low of $42,360. Four months later, the price stood 18% below $56,650, closing on December 2, 2021.
Much has changed during that period, and solid evidence comes from other sections of the industry. Between February 15 and April 2, 2022, the enterprise software development company MicroStrategy announced the acquisition of 4,197 Bitcoin.
Inflows to Canadian Bitcoin Exchange Traded Funds (ETFs) also hit an all-time high, according to data from Glassnode. These investment vehicles in Canada have increased their holdings by 6,594 BTC since January to an all-time high of 69,052 BTC under management. The Purpose Bitcoin ETF, a spot instrument, currently has assets worth $1.68 billion.
Among the wave of recent buyers is Terra’s Luna Foundation Guard (LFG), which is on a mission to acquire $3 billion worth of BTC as a reserve for the TerraUSD (UST) stablecoin.
Data from CoinMetrics shows that Bitcoin’s active supply for the year reached 36.8% on April 5, its lowest level since September 2010.
The graph shows how “diamond hand” holders have not moved their coins in the last 12 months.
Futures markets show traders uneasy near $47,000
To understand how professional traders, including whales and market makers, position themselves, let’s look at data from the Bitcoin futures and options market. The base indicator measures the difference between longer term futures contracts and current cash market levels.
The annualized premium for Bitcoin futures should range from 5% to 12% to compensate traders for “locking in” money for two to three months until contract expiration. Levels below 5% are extremely bearish, while numbers above 12% indicate a bullish trend.
The chart above shows that this metric dipped below 5% on Feb 11, reflecting a lack of trader demand for long (bullish) leverage positions.. Sentiment changed on March 26 after the base rate retraced the “neutral” threshold of 5%. Although this happened, there are no signs of confidence from professional traders, according to the futures premium.
Options traders worry about downside risk
Currently, Bitcoin appears to lack the strength to break through the $47,000 resistance, but traders should use derivatives to gauge professional investor sentiment. The 25% delta bias is a telltale sign whenever arbitrage desks and market makers overcharge for upside or downside protection.
If those traders fear a Bitcoin price drop, the bias indicator will move above 10%. On the other hand, widespread enthusiasm reflects a negative bias of 10%.
The data shows that the bias indicator has hovered between 0% and 8% since March 9. While not indicating fear, these option traders are overcharging for downside protection. From the perspective of the BTC options markets, there is a slightly higher risk of unexpected downward price swings.
The neutral to bearish Bitcoin derivatives data offers an interesting opportunity for the bulls. If the $47,000 resistance is somehow broken, this will come as a surprise to most investors. Two positive effects will emerge from that event: a small contraction in derivatives markets and room for buyers to use futures as leverage.
Had the Bitcoin futures premium been above 10%, traders would face a much higher cost to add long (bullish) positions. The bulls seem to be better prepared to deal with the resistance at the price of $47,000 considering the strong structure of the market that is characterized by the absence of excessive leverage from the buyers and this provides better odds of success.
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