Bitcoin (BTC) price has tested the $16,000 resistance several times since the 25% drop that occurred on November 7-9, and some critics will justify their bearish bias by incorrectly assuming that the FTX fiasco should trigger a much broader change. correction.
It’s kind of annoying me that Bitcoin is still selling for USD 16k-ish, even in the wake of all of this FTX news. I mean I assume the volume is low, but what on earth will it take to properly crush this zombie “currency” back to its rightful value of nearly zero?
—Daniel Knowles (@dlknowles) November 18, 2022
For example, Daniel Knowles, a correspondent for The Economist, says that the world’s 26th largest tradable asset with a market capitalization of $322 billion is “shockingly useless and wasteful.” Knowles also said that “there’s still no logical case for Bitcoin specifically. It’s pure ponzi.”
If you think about it, to outsiders, Bitcoin’s price is the most important indicator of success, regardless of whether its valuation outperforms secular companies like Nestle (NESN.SW), Bank of America (BAC), and Coca-Cola (KO ).
The need of most people for centralized authority over their money is so ingrained that the success and failure rate of cryptocurrency exchanges becomes the gatekeeper and benchmark of success, when in fact, quite the opposite. it’s true. Bitcoin was created as a peer-to-peer monetary transmission network, so exchanges are not synonymous with adoption.
It is worth noting that Bitcoin has been trying to break above $17,000 for the past seven days, so there is certainly a lack of appetite from buyers above that level. The most likely reason is that investors fear contagion risks, similar to what was seen with Genesis Block, the latest FTX-related victim that halted the service due to liquidity issues. According to recent reports, the company announced plans to cease trading and close operations.
The Bitcoin price is stuck in a downtrend, and it will be hard to shake it, but it is fallacious to assume that the failure of the centralized cryptocurrency exchange is the main reason for Bitcoin’s downtrend, or a reflection of its true value.
Let’s look at cryptocurrency derivatives data to understand if investors remain risk averse for Bitcoin.
Futures markets are pulling back and this is bearish
Fixed month futures contracts typically trade at a slight premium compared 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 4% to 8%, which is enough to offset risks plus the cost of capital.
Considering the above data, it is clear that derivatives traders turned bearish on Nov. 9, as the Bitcoin futures premium went into a retracement, which means that the demand for short positions (bearish bets) is extremely high. . This data reflects the unwillingness of professional traders to add leveraged long (bullish) positions despite the cost invested.
The relationship between long positions and short positions shows a more balanced situation
To exclude externalities that might have affected quarterly contracts only, traders should look at the long-short ratio of the best traders. It collects data from clients’ positions on spot exchange, perpetual and fixed-calendar futures contracts, better informing how professional traders are positioned.
There are occasional methodological discrepancies between different exchanges, so readers should monitor changes rather than absolute numbers.
Although Bitcoin failed to break the $17,000 resistance on Nov. 18, professional traders slightly increased their leveraged long positions according to the long-short indicator. For example, the Huobi Traders Index improved from 0.93 on November 16 and currently sits at 0.99.
Similarly, OKX showed a modest increase in its long-short ratio, as the gauge turned from 1.00 to the current 1.04 in two days. Lastly, the metric was flat near 1.00 on the Binance exchange. Therefore, such data shows that traders did not turn bearish after the last rejection of resistance.
Accordingly, one should not conclude that lagging futures, considering the broader analysis of the long-short relationship, does not show evidence of excessive bearish demand by whales and market makers.
It will likely take some time for investors to rule out potential regulatory and contagion risks caused by the fall of FTX and Alameda Research. Until then, a strong recovery for Bitcoin seems unlikely anytime soon.
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