“Don’t fight the trend” is an old saying in the markets, and there are other variations of the phrase like “Never catch a falling knife”. The bottom line is that traders shouldn’t try to anticipate trend reversals or, worse, try to improve their average price while losing money.
It doesn’t matter whether you trade soy futures, silver, stocks or cryptocurrencies. The markets generally move in cycles that can range from a few days to a few years. In the case of Bitcoin (BTC), it’s hard for anyone to justify a bullish case by looking at the graph below.
Bitcoin price in USD at Coinbase. Source: TradingView
For the past 25 days, any attempt to break the descending channel has been abruptly interrupted. Oddly enough, the trend is below $ 40,000 by mid-October, which happens to be the deadline for the U.S. Securities and Exchange Commission to decide on the ProShares Bitcoin ETF (October 18) and the Invesco Bitcoin ETF (October 19).
According to CoinShares’ weekly report, the latest price action has prompted institutional investors to step into the sixth straight week of inflows. There were inflows worth nearly $ 100 million between September 20 and September 24.
Seasoned traders claim that Bitcoin will need to reclaim the $ 43,600 support for the uptrend to resume. Meanwhile, data in the chain suggests strong accumulation as the decline in the supply of foreign exchange was prevalent.
Perpetual futures show traders neutral to bearish
To measure investor sentiment, one should analyze the funding rate for perpetual contracts as these are the preferred tools for retailers. In contrast to monthly contracts, perpetual futures (inverse swaps) are traded at a very similar price to regular spot exchanges.
The funding rate is automatically calculated every eight hours by longs (buyers) when they ask for more leverage. However, if the situation is reversed and shorts (sellers) are too heavily indebted, the funding rate will be negative and they will pay the fees.
Bitcoin Perpetual Futures 8-hour funding rate. Source: Bybt.com
A “neutral” situation involves paying a small fee for leverage longs that varies from 0% to 0.03% per eight hour period, which is 0.6% per week. However, the graph above shows a slightly bearish trend since September 13th, when the funding rate was last above the 0.03% threshold.
The put-to-call ratio favors bulls, but the trend has changed
Unlike futures contracts, options are divided into two segments. Call (buy) options allow the buyer to purchase Bitcoin at a fixed price on the expiration date. Generally these are used for either neutral arbitrage trades or bullish strategies.
In the meantime, put (sell) options are often used as protection against negative price fluctuations.
To understand how these competing forces are balanced, one should compare the open interests of the call and put options.
Put-to-Call Ratio in Bitcoin Options Open Interest. Source: Laevitas.ch
The indicator hit a low of 0.47 on August 29, reflecting the 50,000 BTC protection puts stacked against the 104,000 BTC call (buy) options. Still, the gap has narrowed as the use of neutral to bearish put contracts picked up after the September 24th monthly expiration.
According to Bitcoin futures and options markets, it may seem premature to call a “bearish” period, but the past two weeks have shown absolutely no signs of upward trends in derivatives. It appears that the bulls’ hope is holding onto the ETF deadline, which acts as a trigger to break the current market structure.
The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement carries risks. You should do your own research when making a decision.