The recent rejection of the Bitcoin price (BTC) at USD 12.400 resulted in USD 234 million in futures contract settlements on the derivatives exchanges. Despite a 30% rally in the last 30 days, the level of USD 11,700 has been maintained as support is undecided.
Bitcoin has not seen a lower minimum since the 50% recession in mid-March, which caused the price to test the level of less than USD 4,000.
There have certainly been ups and downs over the past three weeks, although a clear upward trend has been present. Trader sentiment was certainly not positive on August 2 after a drop of USD 1.4 billion settled USD 1 billion in futures contracts.
It is natural for the human mind to give more relevance to recent events, especially when they present a negative outcome.
Traders who use leverage will no doubt have a more agonizing experience when faced with such large and unexpected red candles during longer upward trends.
PlanB confirms Bitcoin’s bullish market by presenting a RSI similar to the 2016 halving
Leverage measurement by funding rate
Excessive buyer leverage will be reflected in the financing rate. This is because perpetual futures contracts, also known as reverse swaps, have a built-in rate for the use of margin.
Financing rates are generally changed every 8 hours and ensure that there are no imbalances due to overexposure to currency risk.
If buyers use more leverage than sellers, the financing rate will be positive and buyers will pay. The opposite is true when sellers of future contracts are the ones demanding more margin.
After a brief positive rebound on August 10, the funding rate was relatively quiet for the next seven days. This trend changed earlier this week when the indicator reached 0.10%, equivalent to 2% per week.
This does not necessarily translate into optimistic investors, but it does indicate that buyers are using more leverage.
3 reasons why the price of Bitcoin fell to $11,600 and why it was not a surprise
Option markets show few signs of stress
Volatility is the main indicator of price movements and can be calculated using historical prices or the price of the options market, known as implied volatility. This means that regardless of the daily swings in the last week or month, the implied volatility measures the current scenario.
Only those Bitcoin options with exercises closest to the current levels of the underlying market are used, i.e. from USD 11,000 to USD 13,000 at the current time. These are known as at-the-money options and are used for the calculation of implied volatility.
Notice how the indicator barely moved during the last 48 hours. This would certainly not be the case if the market had experienced a sudden drop of USD 2,000. This reinforces the thesis that the current Bitcoin System correction is a healthy reversal, rather than a market movement that changes trends.