Bitcoin (BTC) price has been facing a period of extreme volatility since it went from $52,950 on September 7 to $42,800 just two hours later. Recently, the $45,000 support was held on hold for a few days despite its intense test, which triggered a swing high of $3,400 up and down on September 13th.
There is no doubt that shorts – traders betting on lower prices – have had the upper hand since the liquidation of $3.54 billion worth of long futures contracts (to buyers) on September 7.
MicroStrategy announced on September 13th about it More than 5,050 Bitcoin added with an average price of $48,099 was not enough to restore confidence, and the price of the cryptocurrency remained unchanged near $44,200.
While the effect of the selloff may be felt, regulatory concerns are likely to continue to dampen markets, as the US Treasury reportedly discussed possible regulation of private stablecoins, as Reuters reported on September 10.
The increased interest from regulators comes as the stablecoin market cap has grown from $37 billion in January to $125 billion today. Moreover, both Visa and Mastercard have reiterated their interest in stable currency solutions.
Regardless of the reason behind the current price weakness, derivatives contracts are showing bullish sentiment since August 7.
Professional traders have been optimistic for the past five weeks
Quarterly bitcoin futures are the preferred instruments of whale and arbitrage desks because they have the great advantage of not having a volatile funding rate. However, these matters may seem complicated to retail traders due to the settlement history and the difference in price from the spot markets.
When traders opt for perpetual contracts (reverse swaps), derivatives exchanges charge fees every eight hours depending on which side requires more leverage. Meanwhile, fixed-date expiration contracts usually trade at a premium from regular spot market exchanges to compensate for late settlement.
An annual premium of 5% to 15% is expected in healthy markets because the funds held in these contracts could otherwise be used for lending opportunities. This situation is known as contango and occurs on almost every derivative instrument.
However, this indicator fades or turns negative during bear markets, causing a red flag known as a pullback.
The chart above shows that the premium (the base price) rose above 8% on August 7 and has continued this moderate uptrend ever since. Thus, the data is exceptionally healthy and hardly depicts any lack of conviction, even with Bitcoin testing below $44,000 twice in the past 15 days.
Related: Regulatory and privacy concerns track SEC threat on Coinbase
Open interest on futures contracts remains healthy
The $3.54 billion liquidation across derivatives markets on September 7 certainly hurt highly leveraged traders, but open interest on bitcoin futures is still good in the grand scheme of things.
Check out how the current figure of $14.8 billion is 23% higher than the June-July average of $12 billion. This contrasts with speculation that traders have been heavily influenced and are reluctant to place trades due to bitcoin’s volatility or somehow fear of an imminent drop.
There should be no doubt, at least according to futures markets, that investors are neutral on the upside despite the recent price correction. Of course, traders should keep an eye on the important resistance levels, but so far, $44,000 has held.
The opinions and opinions expressed here are solely those of author and do not necessarily reflect the opinions of Cointelegraph. Every investment and trading move involves risks. You should do your research when making a decision.
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