3 Bitcoin price metrics show bulls were not fazed by today’s $1.6B liquidation

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February 22, 2021 by CoinSurges
Today’s $1.6 billion Bitcoin liquidation event might have flushed out some over-leveraged retail investors, but the overall market is still

Today’s $1.6 billion Bitcoin liquidation event might have flushed out some over-leveraged retail investors, but the overall market is still positioned in favor of bulls.

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Bitcoin’s (BTC) sudden $11,500 drop liquidated more than $1.64 billion worth of BTC futures contracts. This massive figure represents 8.5% of the total $19.5 billion in open interest, which coincidentally had just reached its all-time high.

Although these are significant figures, they were proportionally lower than the $1 billion futures liquidation on November 26, 2020. At that time, the 16% correction that followed Bitcoin price testing a $16,300 low reduced the open interest by 17%.

In light of today’s big price move, investors’ positive expectations regarding Bitcoin remain unfazed as both the futures contracts funding rate and the options 25% delta skew are not flashing any red flags.

Open interest dropped by 8%

Bitcoin futures aggregate open interest. Source: Bybt.com

As the chart above shows, negative price swings and reductions in BTC futures open interest does not impact Bitcoin’s long-term growth. Between Jan. 19 and Jan. 23, the indicator fell by 20%, but it only took only two weeks to recover to the $13 billion level.

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Open interest will vary more aggressively when traders are using excessive leverage. When this occurs, normal price fluctuations will cause cascading liquidations, reducing the outstanding number of open contracts.

Contango held steady, indicating a healthy market

By measuring the futures contracts premium to the current spot levels, one can infer whether professional traders are leaning bullish or bearish. Typically, markets should display a slightly positive annualized rate, a situation known as contango.

Bitcoin March 26 futures annualized premium. Source: NY DIG Digital Assets Data

Although the premium toned down after touching 5.7% on Feb. 17, it has since dropped down to 3.5%, which is average. Considering that there are 31 days left for the Mar. 26 contract expiry, this translates to an extremely bullish 50% annualized rate.

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As previously reported by Cointelegraph, the perpetual contracts funding rate has exceeded 2.5% per week. Therefore, arbitrage desks are likely paying such a hefty premium on March contracts to profit from the rate difference.

The options market’s 25% delta skew remains bullish

The 25% delta skew measures how the neutral-to-bullish call options are priced than equivalent bearish put options.

Bitcoin 3-month options 25% delta skew. Source: laevitas.ch

The indicator acts as an options traders’ fear and greed gauge, and it is currently sitting at negative 6%, meaning protection to the upside is more expensive. This further confirms the absence of desperation from market makers and top traders.

Key indicators continue to favor bulls

Today’s price action might be surprising to new market participants, but those who remember when Bitcoin price crashed by $11,200 between Jan. 10 and Jan. 11 will know that these sharp movements can’t be deemed out of the norm, especially considering Bitcoin’s 6-day volatility at 5.1%.

The data suggests that traders buying today’s dip will likely come out on top. Bitcoin’s positive newsflow and institutional investors growing interest in BTC will likely just intensify after today’s $48,000 retest.

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

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