Bitcoin futures and options indicators remained stable during the 26.5% crash, a signal that the harshest part of the BTC correction may be over.
This week’s $11,000 drop occurred in just 32 hours and this definitely an important milestone for Bitcoin (BTC) price.
Many mainstream media outlets perceived the correction as the start of a new bear market but data simply does not support this line of thinking.
Bitcoin price may have corrected 26.5% as if dropped to retest the $30,300 support but it has since shown significant strength amidst a record-high $160 billion in derivatives volume.
Spot exchanges also outpaced their previous record high that was set just three days ago on Jan.9 as BTC soared to a new all-time high at $41,950. The incredible $27.7 billion in volume seen on Jan.11 was 60% higher than the previous peak.
By itself, Binance exchange-traded $9 billion worth of BTC, which is more than double the entire industry average seen in December 2020.
The infamous 50% intraday crash on March 12, 2020, resulted in $8 billion volume on spot exchanges. To put things in perspective, Ether (ETH) traded $16 billion volume on Jan. 11.
Despite the recent bearish price action and this week’s $1.5 billion in long liquidations, Bitcoin has bounced back by over 13% from the $30,300 bottom.
Even though the price failed to sustain the $36,000 level seen in the early hours of Jan. 12, investors seem relatively tranquil and trading volumes are not pointing toward further correction.
GBTC still has a noticeable premium
Although this event might have spooked some buyers, looking under the hood, it is a very healthy sign. Another factor to consider is that Grayscale’s GBTC funds added 72,950 BTC in December but suspended new shares issuance on Dec. 24. Meanwhile, Bitcoin almost doubled from $23,200 to its $42,000 peak.
The fund manager has now resumed its regular activity for most crypto trusts, raising the question of whether initiated institutional inflow can be attributed to BTC’s bullish price action. What is clear is that institutional investor interest and demand is still there. Even though Bitcoin price dropped by 26.5%, the GBTC premium stayed above 14%.
Fixed-calendar futures premium held steady
Professional traders tend to dominate longer-term futures contracts with set expiry dates. Thus, by measuring how much more expensive futures are versus the regular spot market, a trader can determine how bullish the market is. The 3-month fixed-calendar futures should usually trade with a 1.5% or higher premium versus regular spot exchanges.
Whenever this indicator fades or turns negative, this is an alarming red flag. Such a situation, also known as backwardation, indicates that the market is turning bearish.
The above chart shows that the futures premium held levels above 3.5% throughout the storm.This is equal to an annualized 14.5% level and indicates that there is optimism from professional traders.
The options skew is at bullish levels
Reviewing the put/call ratio will assist with determining whether the recent bearish price action polluted Bitcoin’s bullish standing among pro investors. The current skew level provides a real-time fear and greed indicator based on options pricing.
Skew indicators will shift to negative when call (neutral/bullish) options are more costly than equivalent puts. A 10% level signals that call options are trading at a premium to the more bearish/neutral put options. On the other hand, a negative skew translates to a higher cost of downside protection, indicating bearishness.
The chart above shows just how quickly the negative sentiment was overturned in the options market. After shifting sharply in both directions due to increased volatility, the indicator has now returned to 10, reflecting moderate bullishness in options pricing.
Bitcoin firmly held the $30,000 support and bulls showed their confidence by adding positions during this dip. This shows that at the moment, there are no signs of market exhaustion or worrisome signals from derivatives indicators.
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