3 Bitcoin price metrics show today’s 10% pump down the last cycle

The correlation between Bitcoin (BTC) and the stock markets has been unusually high since mid-March, meaning that the two asset classes have exhibited similar directional movements. This data may explain why the 10% rally above $21,000 is being dismissed by most traders, especially as S&P 500 futures gained 4% in two days. However, Bitcoin’s trading activity and its underlying market strongly support the recent gains.

Interestingly, Bitcoin’s current rally occurred a day after the White House Office of Science and Technology Policy released a report examining the use of energy with digital assets. The study recommended implementing energy reliability and efficiency standards. He proposed that federal agencies provide technical assistance and initiate a collaborative process with industry.

Bitcoin/USD (orange, left) versus S&P 500 futures (blue). Source: TradingView

Note how the peaks and valleys on both charts are similar, but the relationship changes as investors’ perceptions and assessments of risk vary over time. For example, between May 2021 and July 2021, the correlation is reversed most of the time. Overall, the stock market posted steady gains while the crypto markets fell.

More importantly, the chart above shows that a large gap opened up between Bitcoin and the stock market as stocks rallied from mid-July to mid-August. It would be better to compare using the same scale, but this does not work because of the difference in volatility. Still, it is reasonable to conclude that historically these gaps tend to close.

S&P 500 futures 2022 is down 18% through September 6, while Bitcoin is down 60.5% over the same period. Therefore, it is fair to assume that if investors’ appetite for risk assets returns, high volatility assets will outperform the lineup.

Although there are other factors at play, so there is no way to predict the outcome, but the return of investors’ risk appetite will make Bitcoin outperform the stock market and reduce the difference in performance.

Pro traders didn’t expect Bitcoin to go down.

Bearish traders were liquidated on $ 120 million in future contracts, the highest number since June 13. Typically, Bitcoin lost 13% in the two weeks leading up to September 7. Considering that one did not expect this result, one was caught by surprise when the short sellers (bears) of the exchanges ran to buy those orders.

However, there is another piece of evidence hidden in the verification data provided by the original exchanges.

Bitcoin futures 24-hour liquidity data. Source: CoinGlass

Retail-led exchanges (Binance and Bybit) represent only 17.4% of the total orders closed by force, while their combined market share in Bitcoin futures is 30.6%. The data is no doubt that the whales in OKX and FTX are being squeezed.

Another interesting fact that separates the September 9th 10% pump is Bitcoin’s dominance, which measures its market share against other cryptocurrencies.

The supremacy of Bitcoin. Source: TradingView

Notice how the indicator has risen from 39% to now 40.5%, something not seen since May 11 when Bitcoin Flash fell below $26,000. It took another 31 days for the bear market to break through the $28,500 support on June 12. Also note that BTC’s dominance can occur during rallies and major price corrections, so relying solely on these indicators will be of little help in interpreting market movements.

Fear has been erased from the options markets.

The 25% delta skew, the leading Bitcoin options “fear and greed” measure, has improved enough to enter the neutral level.

Bitcoin 60-day options 25% delta skew: Source: Laevitas.ch

If option investors fear a price drop, the volatility indicator will move above 12%, while investor excitement will show a negative 12% volatility. After reaching 18% on September 7, the measure is currently 12%, which is the peak of the independent market. Therefore, the Bitcoin pump on September 9 indicated that professional investors will not demand excessive premiums for defensive options.

These three indicators support the importance of Bitcoin’s 10% pump soon. $120 million of liquidity was focused on LiveVette Short (Bear) less “retail oriented” derivatives exchanges, a 1.5% increase in Bitcoin dominance and options traders pricing in similar upside and downside risks all suggest that Bitcoin may have finally caught up with Bitcoin.

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