Bitcoin derivatives data suggests a price target of 50 thousand BTC for traders

Bitcoin (BTC) price continues to trade below the 2023 high, a sign that investors may have underestimated the strength of the $44,000 resistance. Even when the price of BTC is trading below $42,000, it does not necessarily mean that it cannot reach $50,000 and above. In fact, the opposite seems more likely to happen. Looking at the benchmarks of Bitcoin derivatives, it is clear that traders are optimistic, ignoring the 6.9% decline. But is this optimism enough for further gains?

The $127 million in long-term Bitcoin futures used on December 11 may seem significant in absolute terms, but it represents less than 1% of total open interest – the value of all outstanding contracts. However, the liquid engine admittedly triggered a 7% correction in less than 20 minutes.

Bitcoin's crash was accelerated by derivatives, at least in the short term.

On the one hand, it could be argued that derivatives markets have played a significant role in the recent negative price movement. However, this analysis takes into account the fact that after hitting a low of $40,200 on December 11, Bitcoin price increased by 4.2% in the next six trading hours. Essentially, the impact of aggressive liquidity orders has long dissipated, disproving the idea of ​​risk being driven solely by futures markets.

To determine whether Bitcoin whales and market makers are still bullish, traders should examine the Bitcoin Futures premium, known as the base rate. Professional traders prefer monthly contracts because of their fixed funding rate. In independent markets, these instruments trade at a premium of 5% to 10%, given their extended settlement period.

The data shows that the BTC futures premium barely budged despite the 9% internal price drop on December 11, remaining more than 10% above the neutral-to-bullish threshold. If there was high demand for shorts, the measure would at least drop to a neutral 5% to 10% range.

Traders should analyze the options markets to gauge whether the recent correction has dampened investor optimism. A 25% delta skew is an indication that arbitrage desks and market makers are overpaying for both upside and downside protection.

If traders expect Bitcoin's price to fall, the skewness will increase to more than 7%, and periods of euphoria will result in a negative 7% skew.

As shown above, the skew of BTC options has been neutral since December 5, which indicates a balanced cost for both call (buy) and put options. It's not as optimistic as the previous two weeks, when options traded down 10%, but at least it shows resilience after a 6.1% correction since December 10.

Retailers have remained neutral-to-bullish despite Bitcoin's volatility.

After covering the two most important institutional flow indicators, one should analyze how the leveraged traders of retail traders have influenced price action. Perpetual contracts, also known as reverse swaps, typically include an embedded rate calculated every eight hours.

Positive funding indicates increased leverage among long positions. The data shows a modest increase of 0.045% between December 8 and December 10, which equates to 0.9% for the week, which is neither large nor difficult for most traders to maintain their positions.

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Such data is healthy considering that the price of Bitcoin has risen by 52% since October. It suggests that excessive retail leverage did not drive the long rally and subsequent liquidations.

Regardless, the rally to $44,700 and the subsequent correction to the current $41,300 was mainly driven by the spot market. This doesn't mean the bottom is in, but it greatly reduces the chances of a spot exchange-traded fund (ETF) losing out due to the over-optimism associated with waiting for approval.

Basically, this is good news for Bitcoin bulls, as derivatives indicate that positive momentum has not faded despite the price correction.

This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.