bitcoin (btc) price continues to trade below its 2023 high, a sign that investors may have underestimated the strength of the $44,000 resistance. Even if the btc price trades below $42,000, it does not necessarily mean that reaching $50,000 or more is no longer possible. In fact, the opposite seems more likely to happen. Looking at bitcoin derivatives metrics, it is clear that traders ignored the 6.9% drop and remained bullish. However, is this optimism enough to justify further progress?
The liquidation of $127 million of leveraged long bitcoin futures on December 11 may seem significant in absolute terms, but it represents less than 1% of the total open interest – the value of all outstanding contracts. However, it is undeniable that the liquidation engine caused a 7% correction in less than 20 minutes.
bitcoin's decline was accelerated by derivatives, at least in the short term
On the one hand, one could argue that derivatives markets played a crucial role in the recent negative price movement. However, this analysis overlooks the fact that after hitting a low of $40,200 on December 11, the price of bitcoin rose 4.2% in the following six hours of trading. In essence, the impact of forced liquidation orders had long since dissipated, refuting the notion of a crisis driven solely by futures markets.
To determine whether bitcoin whales and market makers remain bullish, traders should examine the bitcoin futures premium, also known as the base rate. Professional traders prefer monthly contracts due to their fixed funding rate. In neutral markets, these instruments trade at a premium of 5% to 10% to take into account their extended settlement period.
The data reveals that the btc futures premium barely fluctuated despite the 9% intraday price drop on December 11, as it remained above the 10% neutral to bullish threshold throughout. Had there been a significant excess demand for shorts, the metric would have fallen at least to the neutral range of 5% to 10%.
Traders should also analyze the options markets to assess whether the recent correction has dampened investor optimism. The 25% delta bias is a telltale indicator when arbitrage desks and market makers overcharge for upside or downside protection.
If traders expect a bitcoin price drop, the bias metric will rise above 7%, and periods of enthusiasm tend to result in a negative bias of 7%.
As shown above, the btc options bias has been neutral since December 5, indicating a balanced cost for both call and put options. It's not as bullish as previous weeks, when puts were trading at a 10% discount, but at least it shows resilience after the 6.1% correction since December 10.
Retail Traders Remain Neutral to Bullish Despite bitcoin Fluctuations
After covering two of the most relevant indicators for institutional flow, it should be analyzed whether retail traders using leverage influenced the price action. Perpetual contracts, also known as reverse swaps, include a built-in rate that is typically recalculated every eight hours.
A positive funding rate indicates greater demand for leverage among long positions. Note that the data reveals a modest increase between December 8 and 10 to 0.045%, equivalent to 0.9% weekly, which is neither significant nor burdensome for most traders to maintain their positions.
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This data is quite healthy, considering that the price of bitcoin has increased by 52% since October. It suggests that excessive long retail leverage did not drive the rally and subsequent sell-offs.
Whatever caused the rally to $44,700 and its subsequent correction to the current $41,300 appears to be primarily driven by the spot market. This does not necessarily mean a bottom has been reached, but it significantly reduces the chances of cascading liquidations due to excessive optimism tied to the expectation of a spot exchange-traded fund (ETF) approval.
In essence, this is good news for bitcoin bulls as derivatives indicate that the positive momentum has not faded despite the price correction.
This article does not contain investment advice or recommendations. Every investment and trading move involves risks, and readers should conduct their own research when making a decision.
