Bitcoin (BTC) has underperformed against most altcoins in the past two months, but its 20 percent rally has changed the picture, allowing it to surpass $ 1 trillion in market capitalization in October. This has once again diverted investors’ attention to the leading cryptocurrency and altcoins have turned red.
The current positive momentum can turn dangerous if Bitcoin traders become overconfident and use leverage to open long positions. To avoid this, traders must carefully analyze the derivatives markets.
Note that altcoin’s market capitalization increased by 5.8 percent, and Bitcoin gained 20.8 percent during the same period. Of course, there are some extraordinary data like Shiba Inu (SHIB) going up 200 percent, Phantom (FTM) going up 60 percent, and Klaytn (KLAY) going up 36 percent. However, the total market capitalization of altcoins did not keep up with the performance of Bitcoin.
Some household names like Bill Miller, the billionaire Wall Street investor who has been bullish on Bitcoin lately, have raised concerns about most altcoin projects. Miller spoke openly about the involvement of “big banks” and talked about “huge amounts” of venture capital money flowing into Bitcoin.
The recent Bitcoin frenzy appears to be driven by the macroeconomic scenario. The United States has raised its debt limit by $ 480 billion to pay its obligations through early December. Endless stimulus packages and inflationary pressure from low interest rates fueled the long rally in commodities.
For example, oil hit a seven-year high and wheat futures recently hit a record not seen since February 2013. Even the S&P Case-Shiller Home Price Index posted a 23.3 percent annual gain.
To see if Bitcoin investors are getting too excited, traders should look at Bitcoin derivatives indicators such as futures market premium and options data.
Futures Premium Shows Traders Expect Some Gain
The base rate measures the difference between long-term contracts and current spot market levels. This indicator is also often called a futures premium.
Known as “contango,” it predicts premiums of between 5 and 15 percent per year in healthy markets. This price difference is due to sellers demanding more money for long-term settlement.
The recent rally in the price of Bitcoin of 20 percent allowed the indicator to reach the upper limit of this neutral zone. This means that investors are optimistic, but not overly confident yet. When buyers demand excessive leverage, the base rate can easily exceed 25 percent, as seen in mid-May.
Bitcoin options signal ‘neutral’ sentiment
The 25% delta deviation compares similar call and put options. This metric turns positive when “fear” is rampant because traders anticipate potential downsides.
The reverse is true when option traders are bullish, causing the 25% delta bias indicator to shift into negative territory. Data between -8% and + 8% is generally considered neutral.
The chart above is not the only example of options traders who have been overconfident in the last six months. The meaning of “ambition” can be inferred when the delta skew of 25% falls below -8%. Meanwhile, the indicator stayed close to 0 last week, revealing a balance between bears and bulls.
These findings show a lack of trust from buyers, but the opposite is true. If the Bitcoin bulls were already overconfident at $ 57,000, there would be little room for additional leverage, increasing the risk of a gradual liquidation if an instant price correction were to occur.
The bulls are modestly confident and even a 20 percent price correction is unlikely to turn the tables, as the futures market base rate points to a reasonable premium after the recent rally.
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