Bearish or bullish? These four key Bitcoin price indicators tell you the answer

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https://cointelegraph.com/news/these-4-key-bitcoin-price-metrics-clearly-reflect-traders-bullish-optimism

Multiple Bitcoin price indicators show that securities traders remain bullish on Bitcoin even if it falls below $22,000.

There were also some analysts issuing bearish forecasts as the price of Bitcoin tested a low of $17,580 on December 11, but investors remained relatively calm. Although last week’s trading may have been flat from the start, Bitcoin’s fundamentals have become stronger.

BTC/USD 4-hour chart. Source: TradingView

Every time Bitcoin hits a new high, investors expect some form of correction. While it failed to break through the $24,000 resistance level, the price quickly rebounded from the low below $22,000 on December 21. This event may have given sellers some hope, but analysts see no signs of weakness.

In the past week, Bitcoin’s dominance continued to rise, climbing from 64.3% to 67.3%. This was helped by the Dubai-based financial consulting firm deVere Group’s forecast of $46,000 in 2021. In addition, the Chicago Mercantile Exchange’s futures contracts exceeded $1.3 billion. This also proves an indisputable fact that institutional participation in the BTC market is increasing.

This fact seemed to give investors more confidence, and Bitcoin hit a record high of $24,300 on December 20.

The top 16 crypto assets by weekly performance. Source: Nomics & CoinMarketCap

Bitcoin outperformed the other top 15 crypto assets over the past week, with an average gain of 7.7%. More importantly, the trading volume of other crypto assets was disappointing compared to Bitcoin's 50% growth. This metric reinforces the recent dominance, with BTC taking $22,500 as new support.

Bitcoin price consolidates as institutional investors accumulate

Crypto fund manager Grayscale Investments also continues to actively add BTC to its portfolio, which currently holds $13.3 billion in Bitcoin.

Grayscale Investments BTC shares Source: bybt.com

Over the past week, 11,620 BTC were added, totaling 576,650 BTC. So it was another excellent week for the Grayscale Bitcoin Trust. Similar excitement can be seen by analyzing the fund’s premium to effective BTC per share held, which currently stands at 0.00095064 BTC.

Grayscale Bitcoin Trust Premium Source: TradingView and Grayscale

As shown above, premiums have increased from 18% to 40% in the last seven days. This extraordinary level is partly due to the temporary suspension of new share issuance. While this is unusual, a similar situation occurred six months ago.

Perpetual futures funds remain stable

Perpetual contracts, also known as inverse swaps, have a fixed interest rate that is usually charged every 8 hours. The funding rate ensures that there is no exchange rate risk imbalance. Even if the open interest of buyers and sellers is aligned at all times, the leverage may vary. When buyers (longs) require more leverage, the funding rate becomes positive. Therefore, the buyers will be the ones paying the fees. This problem is especially true during bull markets, as longs are usually in greater demand.

A sustainable growth rate of more than 2% per week implies extreme optimism. This level is acceptable during a market rally, but problematic if BTC price is sideways or in a downtrend.

In this case, high leverage from buyers increases the likelihood of mass liquidations when prices suddenly drop.

BTC perpetual futures financing rate. Source: Digital Asset Data

Note that the weekly funding rate managed to avoid going negative despite Bitcoin’s weakness on December 21. This data suggests that short (sell) and long (buy) traders are using roughly the same amount of leverage.

This is a neutral statistic as both parties have the opportunity to increase their bets.

Social networking activity peaks

BTC Twitter user activity and USD price Source: TheTie

Data from TheTie also shows that the recent rise in BTC prices has coincided with the highest level of tweets related to “Bitcoin” since December 2017. Despite the recent correction in the social activity indicator, the current level is still 10% higher than last month.

While a big increase in Twitter activity doesn’t necessarily equate to active retail buying, it certainly helps draw more attention to the crypto asset as it continues to move higher.

Option Call Ratio

The best way to gauge overall market sentiment is with call (buy) options or put (sell) options. Generally speaking, call options are used for bullish strategies, while put options are used for bearish strategies.

The put to call ratio is 0.70 which indicates that the open interest of call options is 30% higher than that of put options, so the trend is better for calls.

In contrast, an indicator of 1.20 leans towards put options 20%, which can be considered bearish. One thing to note is that this indicator aggregates the entire BTC options market, including all calendar months.

BTC options call ratio. Source: Cryptorank.io

As Bitcoin price surpassed $20,000, investors sought downside protection. As a result, the put-call ratio peaked at 1.08 on December 19.

This suggests that investor optimism has not been affected by the 10% price correction after the all-time high of $24,200.

Bitcoin currently holds $22,500

Traders remain optimistic

Overall, each of the indicators discussed has quickly moved back into neutral to bullish territory, which is relatively bullish given that the market recently tested lows of $21,910.

Investors remain optimistic as BTC remains above $22,500, and the continued rebound after each drop is a positive sign.