The Bitcoin (BTC) daily price chart seems to be making a steady recovery pattern, but some concerning indicators are coming from derivatives markets. At the moment, the futures and options markets are showing a lack of confidence from Bitcoin pro traders, but there’s a positive spin to the data.
Bitcoin price at Coinbase, USD. Source: TradingView
The road to $40,000 seems uncomfortably predictable, and cryptocurrency traders usually call it “manipulation” when such price movements happen.
If you #bitcoin around that region, just be careful.
A picture speaks a thousands words and I think mine says it all.
Make it or break it time around the corner for #btc. This weekend is weekly close & monthly close as well so expect volatility and manipulation.#Crypto pic.twitter.com/kPhDKAjupQ
— @Maze (Will never DM 1st or Follow) (@_CryptoMaze_) January 28, 2022
Regardless of the rationale behind Bitcoin’s price recovery, investors should analyze derivatives markets to understand how whales, market makers and arbitrage desks are positioned.
While retail traders’ favorite instrument is the perpetual contract (inverse swaps), pro traders often opt for fixed-calendar futures and options. Although they are more complicated to trade, these derivatives offer more complex strategies.
Liquidations are behind us, but so is the route to $69,000
Data shows that there hasn’t been a relevant futures contract liquidation since Jan. 23. When leverage long (buyers) have their positions terminated, it accelerates the price correction, because derivatives exchanges need to sell those futures at market prices.
Total crypto futures liquidations, USD. Source: Coinglass
Notice how the last “big” forced position termination on longs was $290 million on Jan. 23. This partially explains why Bitcoin’s recovery was relatively tranquil over the past week. Still, the market is nowhere near being out of the water, considering that BTC is currently trading 44% below the $69,000 all-time high.
Bitcoin 3-month futures annualized premium. Source: Laevitas.ch
The Bitcoin futures annualized premium should run between 5% to 12% to compensate traders for…