Bitcoin (BTC) price lost 11.3% between December 14-18 after briefly testing resistance at $18,300.
The move followed a seven-day 8% correction in S&P 500 futures after US Federal Reserve Chairman Jerome Powell issued hawkish remarks after raising interest rates on Dec. 14.
Bitcoin price pulls back to channel support
Macroeconomic trends have been the main driver of recent movements. For example, the latest bounce from the five-week rising channel support at $16,400 has been attributed to the efforts of the Central Bank of Japan to contain inflation.
On December 20, the Bank of Japan raised the yield limit on government bonds, which are now trading at levels not seen since 2015.
However, it has not all been positive for Bitcoin, as miners have struggled with the hash rate near an all-time high and rising energy costs. For example, On December 20, Bitcoin miner Greenidge reached an agreement with his creditor to restructure a $74 million debt, although the agreement requires the miner to sell almost 50% of his equipment.
Meanwhile, publicly traded Bitcoin mining company Core Scientific filed for bankruptcy on December 21. Although the company continues to generate positive cash flows, the revenue is insufficient to cover its operating costs, which involve paying the lease for its Bitcoin mining equipment.
During these events, Bitcoin has held on to $16,800, so there are buyers at these levels. But let’s look at the crypto derivatives data to understand if investors have increased their risk appetite for Bitcoin.
Bitcoin futures return to backwardation
Fixed-month futures contracts typically trade at a slight premium to regular spot markets because sellers demand more money to retain settlement longer. Technically known as contango, this situation is not exclusive to crypto assets.
In healthy markets, futures should trade at an annualized premium of between 4% and 8%, enough to offset risks plus the cost of capital.
It is clear that attempts to raise the indicator above zero have failed miserably in the last 30 days. The absence of a Bitcoin futures premium indicates more demand for bearish bets, and the metric worsened from December 14 to December 21.
The current discount of 1.5% indicates the reluctance of professional traders to add leveraged (bullish) long positions despite actually getting paid to do so.
Big traders are not willing to part with their long positions
Even so, investors should analyze the relationship between long and short positions to exclude externalities that have influenced only the quarterly contract premium.
The metric collects data from the exchange’s client positions in spot and perpetual contracts, better informing how professional traders are positioned.
Despite Bitcoin briefly trading below $16,300 on Dec. 19, professional traders did not reduce their leveraged long positions based on the long-to-short indicator. For example, Huobi’s traders’ ratio stabilized at 1.01 between December 16 and 21.
Similarly, OKX showed a modest increase in its long-short ratio, with the indicator rising from 1.02 to the current 1.04 in five days.
Lastly, the metric increased slightly from 1.05 to 1.07 on Binance, confirming that traders did not turn bearish after the ascending channel support was tested.
The strength of the $16,800 support is a bullish indicator
Traders cannot ensure that the absence of a futures premium necessarily translates into bearish price expectations. For example, a lack of trust in exchanges could have scared off would-be leverage buyers.
On the other hand, the strength of the relationship between long and short positions of major traders has shown that sellers and market makers did not reduce leveraged long positions despite the recent price decline.
In essence, Bitcoin’s price movement has been surprisingly positive, considering the negative news flow from miners and the bearish influence of rising interest rates on risk markets.
Therefore, as long as the $16,500 channel support continues to hold, bulls have reason to believe that another shot at the $18,400 upper band limit is viable before the end of the year.
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