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Bitcoin options data shows traders anticipate BTC price to fall soon

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Market data from Skew shows investors in the Bitcoin (BTC) options market are cautiously bearish in the short term as of Sep. 8. The shift in sentiment comes after BTC’s abrupt 17% drop in seven days.

The daily chart of Bitcoin. Source: TradingView.com

Bitcoin fell below the $10,000 support level for the fourth consecutive day. Some analysts say that the repeated test of the same level is a bearish sign. Others say that BTC is showing resilience at an important support area.

Why the Bitcoin options market data might be more relevant this time around

Throughout the recent pullbacks, BitMEX rarely saw long contract liquidations total above $50 million.

Typically, when the price of Bitcoin falls by 5% to 15%, BitMEX tends to see liquidations above $80 to $100 million.

The lackluster liquidations on major futures exchanges come from a relatively low open interest. The term open interest refers to the total amount of short and long contracts open at a certain time.

The futures market data indicates that the majority of the selling pressure did not come from cascading liquidations. Rather, miners or whales taking profit on their holdings likely triggered the sharp pullback since early September.

The options data could become more relevant in the short term because the futures market has been stagnating. 

Traders in the cryptocurrency market generally use two types of derivatives to trade Bitcoin: options and futures.

Total Bitcoin option open interest

Total Bitcoin option open interest. Source: Skew

While the aggregated open interest of Bitcoin futures has been falling, options open interest began to recover since Aug. 28. Researchers at Skew wrote:

“Bitcoin options flows show: short-term bearish, medium-term neutral, long-term bullish. A fair representation of consensus?”

Where traders expect BTC to head in the short term

In the near term, traders are exploring three main areas: Bitcoin whale buy orders at $8,800, the $9,650 CME gap, and the $10,620 CME gap. Edward Morra, a cryptocurrency trader, explained:

“CME chart has a fresh gap 10620, usually most of the gaps (~90%) are filled within few days max, with exceptions (10%) that take a long time (like your $9,6 gap from July). So, it makes sense to assume higher gap at 10620 gets filled first here and then we see how it goes.”

If BTC sees a relief rally, it could achieve both CME gaps, hitting the higher gap first. But a pseudonymous trader known as “Byzantine General” says there might not be enough shorts to trigger a squeeze. He said:

“People keep talking about a “squeeze”. But OI dropped like a rock and funding is baseline. What shorts are there to squeeze?”

Bitcoin open interest across major futures exchanges

Bitcoin open interest across major futures exchanges. Source: Coinalyze.net

The declining Bitcoin futures market’s open interest and the repeated retest of $10,000 support the short-term bear case for BTC. Whether it sees a relief rally after a 20% drop in 23 days remains to be seen.





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Just HODL! Bitcoin and Ethereum outperform ‘lower risk’ crypto index funds

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In the past two decades, index and exchange-traded funds (ETF) have become some of the most popular forms of investing because they offer investors a passive way to gain exposure to a basket of stocks as opposed to investing in individual stocks which increases risk of loss. 

Since 2018, this trend has extended to the crypto sector and products like the Bitwise 10 Large Cap Crypto Index (BITX) tracks the total return of Bitcoin (BTC), Ether (ETH), Cardano (ADA), Bitcoin Cash (BCH), Litecoin (LTC), Solana (SOL), Chainlink (LINK), Polygon (MATIC), Stellar (XLM) and Uniswap (UNI).

The ability to access multiple top projects through one weighted average market cap index sounds like a great way to spread out risk and gain exposure to a wider range of assets, but do these products offer investors a better return in terms of profit and protection against volatility when compared to the top-ranking cryptocurrencies?

Hodling versus crypto baskets

Delphi Digital took a closer look at the performance of the Bitwise 10 and compared it to the performance of Bitcoin following the December 2018 market bottom. The results show that investing in BTC was a more profitable strategy even though BITX was slightly less volatile.

Bitcoin price vs. Bitwise 10. Source: Delphi Digital

According to the report, “indices aren’t meant to outperform individual assets, they’re meant to be lower-risk portfolios compared to holding an individual asset,” so it’s not surprising to see BTC outperform BITX on a purely cost basis.

The index did offer less downside risk to investors as the market sold-off in May but the difference was “trivial” as “BTC’s max drawdown was 53% and Bitwise’s was 50%.”

Overall, the benefits of investing in an index versus Bitcoin are not that great because the volatile nature of the crypto market and frequent large drawdowns often have a larger effect on altcoins.

Delphi Digital said:

“Crypto indices continue to be a work-in-progress. Choosing assets, allocations, and re-balancing thresholds is a difficult task for an emerging asset class like crypto. But as the industry matures, we expect more efficient indices to pop up and gain traction.”

Ethereum also outperforms DeFi baskets

Decentralized finance (DeFi) has been one of the hottest crypto sectors in 2021 led by decentralized exchanges like Uniswap (UNI) and SushiSwap (SUSHI) and lending platforms like AAVE and Compound (COMP).

The DeFi Pulse Index (DPI) aims to tap into this rapid growth and the DPI token has allocations to 14 of the top DeFi tokens, including UNI, SUSHI, AAVE, COMP, Maker (MKR), Synthetic (SNX) and Yearn.finance (YFI).

When comparing the performance of DPI to Ether since the inception of the index, Ether significantly outperformed in terms of profitability and volatility, as evidenced by a 57% drawdown on Ether versus 65% for DPI.

Ether price vs. DeFi Pulse Index price. Source: Delphi Digital

While this is an “imperfect comparison” according to Delphi Digital due to the fact that “the risk and volatility of DeFi tokens are higher than Ether’s,” it still highlights the point that the traditional benefits seen from indices are not mirrored by crypto-based baskets.

Delphi Digital said:

“You could’ve just HODL-ed ETH for a superior risk-return profile.”

For the time being, Bitcoin and Ether have proven to be two of the lower-risk cryptocurrency plays available when compared to crypto index funds that offer exposure to a larger number of assets.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.