Don’t Believe the Hype – Bitcoin Price Rise to $17K Reflects Better Sentiment

Bitcoin (BTC) price rose 6.1% between November 28 and November 30 after briefly testing the $17,000 support. Favorable regulatory winds may have contributed to the rally after the Binance exchange announced the acquisition of a regulated crypto exchange in Japan November 30.

Binance closed its operations in Japan in 2018 after being warned by the Japan Financial Services Agency for operating without a license. The acquisition of Sakura Exchange BitCoin will mark Binance’s re-entry into the Japanese market.

Furthermore, the Gemini exchange announced new regulatory approvals in Italy and Greece on 30 November. The exchange was granted registration as a virtual currency operator with Italy’s regulator for payment services. Gemini was approved as a supplier of exchange and custody wallets in Greece.

However, not everything has been positive on the regulatory front. In separate letters dated Nov. 28, Ron Wyden, chairman of the US Senate Finance Committee, requested information from six cryptocurrency exchanges. The legislature targeted the need for “consumer protection consistent with the insurance policies that have long existed for customers of banks, credit unions and securities brokers.”

Wyden asked the six firms to provide answers by Dec. 12 about consumer asset protection and market manipulation. The Senate Agriculture Committee has also scheduled a hearing to explore the collapse of FTX on December 1.

During these events, Bitcoin has attempted to break above $17,000 over the past eighteen days, so some selling pressure clearly remains above that level.

The most likely culprit is the risk of capitulation by Bitcoin miners after seeing their profits squeezed by falling spot prices and increasing difficulty of Bitcoin mining. Cointelegraph noted that Bitcoin miners are facing a significant squeeze after expecting to sell accumulated BTC at a profit.

Let’s look at crypto derivatives data to understand whether investors are still risk-averse to Bitcoin.

Futures markets are no longer in decline

Futures contracts with fixed months usually trade at a small premium to regular spot markets because sellers require more money to hold back settlement for longer. Technically known as contango, this situation is not exclusive to crypto assets.

In healthy markets, futures should trade at an annual premium of 4% to 8%, which is enough to compensate for the risk plus the cost of capital.

Considering the above data, derivatives traders have improved their expectations and the Bitcoin futures premium is no longer negative – meaning that the demand for bullish and bearish leverage is equally balanced.

Still, the current 0% premium is far from the 4% threshold for bullishness, indicating that professional traders will not add to leveraged long (bull) positions.

Another notable development is that the long-to-short ratio has improved over the past two days. To rule out externalities that may have solely influenced the quarterly contracts, traders should analyze the long-to-short ratios of the top traders.

The calculation also collects data from exchange clients’ spot positions and perpetual contracts, which better informs how professional traders are positioned.

Although Bitcoin failed to breach $17,000 on November 30, professional traders rallied somewhat according to the long-to-short indicator. For example, the Binance traders ratio improved from 1.07 on November 28 and currently stands at 1.10.

Similarly, OKX showed a modest increase in its long-to-short ratio, as the indicator moved from 0.98 to today’s 1.03 in two days. The metric fell slightly to 1.02 on the Huobi exchange, showing that traders did not turn bearish after the latest resistance rejection.

The absence of negative price movements is a bullish indicator

Traders should not conclude that the absence of futures premiums reflects worsening market conditions because the broader data from the long-to-short ratio has shown whales and market makers adding leverage longs.

Bitcoin price movement has been surprisingly positive considering the recent negative news flow and fears related to the potential for a regulatory breach and miners’ ability to withstand a prolonged crypto winter.

It will likely take longer for investors to regain confidence and feel that the current contagion risk is over. As a result, bears may continue to exert pressure and sustain Bitcoin below $17,000 in the short term.