Bitcoin (BTC) appears to lack the strength to retest the $67,000 all-time high that it reached on Oct. 20 and this is causing investors to question whether or not the bullish moment has faded. Even with the price facing these hurdles, it’s still premature to call the $58,000 support level test the beginning of a descending channel.
Among the factors limiting the rally is the regulatory uncertainty in the United States. Anne Termine, a partner in the government enforcement and investigations practice at Bracewell LLP and former chief trial attorney at the Commodities Futures Trading Commission (CFTC), said that “there are no easy answers” for the agency to provide clear rules.
Increasing adoption, on the other hand, has been pressuring traditional banks to seek cryptocurrency product offerings. For example, major Russian private bank Tinkoff, owner of a large online brokerage services, is researching crypto-related investment services even though the Bank of Russia withholding such launches.
This week Coinbase exchange hit the top spot as the most downloaded app for the United Stated Apple Store, which is mind-blowing. Coinbase beat tech giants like TikTok, YouTube and Instagram and this is not a small feat. Coinbase first listed on the app store in 2014 and was the most popular download in the U.S. in 2017 and May 2021.
Pro traders stumbled but are bullish again
To determine how bullish or bearish professional traders are, one should monitor the futures premium — also known as the “basis rate.”
The indicator measures the difference between longer-term futures contracts and the current price at spot market exchanges. A 5% to 15% annualized premium is expected in healthy markets, otherwise known as contango.
This price gap is caused by participants demanding more money to withhold settlement longer, and a red alert emerges whenever this indicator fades or turns negative, known as “backwardation.”
Notice how the sharp decrease caused by the $58,000 resistance test on Oct. 27 caused the annualized futures premium to reach its lowest level in three weeks. Still, the indicator recovered nicely to the current 17%, signaling a moderate bullishness.
To confirm whether this movement was specific to that instrument, one should also analyze options markets.
The 25% delta skew compares similar call (buy) and put (sell) options and will turn positive when “fear” is prevalent. That situation reflects the protective put options costing higher than similar risk call options.
The opposite movement holds when market makers are bullish, causing the 25% delta skew indicator to shift to the negative area. Readings between negative 8% and positive 8% are usually deemed neutral.
The 25% delta skew has been ranging in the neutral zone since Sep. 30. The latest bottom on Oct. 25 was negative 6%, not enough to be considered moderate bullishness. However, not even Bitcoin’s 12.5% correction from $66,600 on Oct. 21 to $58,200 on Oct. 28 was enough to inflict fear on professional traders.
Although no bearish signs emerged from the Bitcoin derivatives market, bulls should worry about the potential descending channel starting on Oct. 19. If that movement gets further confirmation, traders should expect $60,000 to become a resistance by Nov. 12.
There are no stress signs currently from professional traders, so a correction after a 63% rally in three weeks that led to the $67,000 all-time high on Oct. 20 should not be problematic.