Bitcoin fails to break the $21,000 support, but the bears remain shy
Bitcoin (BTC) rallied on the back of the US stock market’s 3.4% gain on October 28, as the S&P500 rose to its highest level in 44 days. In addition, recently released data showed that inflation may be easing, giving investors hope that the Federal Reserve may break its pattern of 75 basis point interest rate hikes after its November meeting.
In September, the US core price index for personal consumption expenditures rose 0.5% from the previous month. Although still an increase, it was in line with expectations. This data is the Federal Reserve’s primary inflation target for interest rate modeling.
Further positive news came from tech giant Apple, which reported weak iPhone revenue on October 27 but beat Wall Street estimates for quarterly revenue and margin. Also, Apple CFO Luca Maestri said the services will grow year-over-year in the fourth quarter.
Bitcoin futures data shows reluctant buyers
Retail traders usually avoid quarterly futures because of their price difference from the spot markets. Nevertheless, they are professional traders’ instruments of choice because they prevent perpetual swings in contract funding rates.
These fixed-month contracts usually trade at a small premium to the spot markets because investors require more cash to hold back the settlement. But this situation is not exclusive to crypto markets, so futures should trade at a 4% to 10% annual premium in healthy markets.
Bitcoin’s futures premium was below 2% over the past 30 days, signaling a complete lack of interest from leverage buyers. Furthermore, there was no significant improvement on October 29 when BTC rallied against the $21,000 resistance.
In a nutshell, derivatives traders are far from optimistic about the Bitcoin price despite the low cost of adding bullish positions. Nevertheless, one must also analyze the BTC margin markets to rule out externalities specific to the futures instrument.
Derivatives traders are not willing to place bullish bets
Margin trading allows investors to borrow cryptocurrency to leverage their trading position, potentially increasing their returns. For example, one can buy Bitcoin by borrowing Tether (USDT), thereby increasing their crypto exposure. On the other hand, borrowing Bitcoin can only be used to short it – betting on the price decline.
Unlike futures contracts, the balance between margin longs and shorts is not necessarily matched. When the lending margin is high, it indicates that the market is bullish – the opposite, a low lending ratio, signals that the market is bearish.
The chart above shows investor morale peaked on October 13 when the ratio reached 23.5, which is rarely sustainable for extended periods. From that point forward, OKX traders presented less demand to borrow Tether, solely used to bet on the price uptrend.
Still, the ratio is currently at 7.5, leaning positively in absolute terms as it favors stablecoin lending by a large margin. It is worth highlighting that no sentiment change occurred despite Bitcoin’s 7.5% weekly rally between October 24th and October 31st.
Lack of excitement does not mean bearishness
Derivatives data shows no demand from buyers, although Bitcoin flirted with $21,000 on October 29. Unlike retail traders, these seasoned whales tend to anticipate movements by sticking to their convictions even when markets move in the opposite direction.
The data above suggests that traders expecting Bitcoin to break above $21,000 in the near term are likely to be disappointed. But on a positive note, there have been no signs of the bears becoming more confident as both futures and margin markets remain neutral to bullish.
The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trade involves risk. You should do your own research when making a decision.
