3 Bitcoin Price Calculations Suggest September 9th 10% Pump Marked Recent Cycle Bottom

The correlation between Bitcoin (BTC) and the stock markets has been unusually high since mid-March, meaning that the two asset classes have presented almost identical directional movement. This data may explain why the 10% rally above $21,000 is dismissed by most traders, especially considering that S&P 500 futures gained 4% in two days. However, Bitcoin trading activity and the derivatives market strongly support the recent gains.

Curiously, the current Bitcoin rally occurred a day after the White House Office of Science and Technology Policy released a report examining the energy use associated with digital assets. The study recommended enforcing standards for energy reliability and efficiency. It also proposed that federal agencies provide technical assistance and begin a collaborative process with industry.

Notice how the peaks and valleys on both charts tend to coincide, but the correlation changes as investors’ perceptions and risk assessments vary over time. For example, between May 2021 and July 2021, the correlation was reversed for most of the period. Overall, the stock market showed steady gains while the crypto markets collapsed.

More importantly, the chart above shows a large gap opening up between Bitcoin and the stock market as stocks rallied from mid-July to mid-August. A comparison with the same scale would be better, but it doesn’t work because of the difference in volatility. Nevertheless, it is reasonable to conclude that these gaps have historically tended to close.

S&P 500 futures fell 18% in 2022 through September 6, while Bitcoin fell 60.5% over the same period. So it makes sense to assume that if investors’ appetite for risky assets recedes, higher volatility assets will outperform during a rally.

However, there are other factors at play, so there is no way to predict the outcome. But the return on investors’ appetite for risk will justify Bitcoin’s outperforming of the stock market and significantly reduce the performance gap.

Pro traders did not expect Bitcoin to bounce

Bearish traders liquidated $120 million in futures contracts, the highest since June 13. Normally one would not expect this result considering that Bitcoin had lost 13% in the two weeks leading up to September 7th, but one can assume that short sellers (bears) were surprised when the exchange’s liquidation engine tried to buy these orders.

However, there is other anecdotal evidence hidden in the liquidation data provided by the derivatives exchanges.

Note how retail-driven exchanges (Binance and Bybit) represented only 17.4% of total orders that were heavily closed, while their combined Bitcoin futures market share is 30.6%. The data leaves no doubt that the whales at OKX and FTX were the ones being pushed.

Another interesting piece of data that sets September 9’s 10% pump apart is Bitcoin dominance, which measures market share relative to all other cryptocurrencies.

Note how the indicator rose from 39% to the current 40.5%, something not seen since May 11 when Bitcoin flash crashed below $26,000. It took another 31 days for the bear market to break the $28,500 support on June 12. Also note that a sharp rise in BTC dominance can happen during rallies and steep price corrections, so relying solely on these indicators provides little help in interpreting market movements.

Fear has been erased from the options markets

The 25% delta bias, which is the leading “fear and greed” Bitcoin option, improved just enough to enter a neutral level.

If option investors feared a price crash, the bias indicator would move above 12%, while investor excitement tends to reflect a negative bias of 12%. After reaching a peak of 18% on September 7, the value currently stands at 12%, which is the very edge of the neutral market. Therefore, on September 9, the Bitcoin pump signaled that professional investors are no longer demanding excessive premiums for protective put options.

These three indicators confirm the relevance of Bitcoin’s recent 10% pump. A $120 million liquidation of leveraged shorts (bears) was concentrated in smaller “retail oriented” derivatives exchanges, the 1.5% increase in Bitcoin’s dominance rate and options traders pricing similar upside and downside risks suggest that Bitcoin may have finally found a bottom .

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