Bitcoin Could Be Rebounding: Market Data Shows Bears Losing Grip

It looks like the worst might finally be over for Bitcoin. According to the latest data, it appears that bears are losing their grip on the market. This could mean that the bottom is finally in for BTC.

While some traders may be dismissing Bitcoin's 10% rally above $21,000 as being unimportant, the strong correlation between Bitcoin and stock markets since mid-March suggests that the two asset classes are presenting near-identical directional movement. This data might explain the rally, especially considering that S&P 500 futures have gained 4% in the last two days. However, what is most important is that Bitcoin trading activity and the derivatives market continue to support the recent gains.

The current Bitcoin rally is curious, happening as it does a day after the release of a White House Office of Science and Technology Policy report investigating energy usage associated with digital assets. The study's recommendations include enforcing energy reliability and efficiency standards, and providing technical assistance and initiating a collaborative process with the industry. Federal Agencies would be wise to take heed of the study's findings and act accordingly.

Bitcoin/USD (orange, left) vs. S&P 500 futures (blue). Source: TradingView
The future of finance is digital, and Bitcoin is leading the way. The cryptocurrency has seen tremendous growth in recent years, and its popularity is only increasing. While there are many different digital currencies available, Bitcoin is the most well-known and widely used.

Overall, it seems that the stock market and crypto markets are fairly closely linked. However, this correlation seems to change over time, likely due to investors' perceptions and risk assessments. For example, between May 2021 and July 2021, the correlation was inverted for most of the period. This means that while the stock market posted steady gains, the crypto markets collapsed.

It is reasonable to conclude that the gap between Bitcoin and the stock market will close, as these gaps tend to close historically. However, the scale of the gap is significant and it is not clear how long it will take for the two markets to converge.

It's no surprise that assets with higher volatility outperformed during the recent rally in risk appetite. While the S&P 500 futures declined 18% from January to September, Bitcoin dropped a whopping 60.5%. For investors looking to get the most bang for their buck, higher-volatility assets are the way to go.

It is difficult to predict the exact outcome of the interplay between different factors, but if investors become more risk-seeking, this would justify Bitcoin outperforming the stock market and reducing the performance difference.

Pro traders were not expecting Bitcoin to bounce, but it did!

While many traders were caught off guard by Bitcoin's sudden surge on September 7, bearish traders were hit the hardest, with $120 million in futures contracts being liquidated. This is the highest figure since June 13, and it shows that even in the face of a 13% price drop over the two weeks prior, some traders were still betting against Bitcoin.

It's clear that the data from the derivatives exchanges provides some hidden, anecdotal evidence. This is an important discovery that could help to shape our understanding of the market.

Bitcoin futures 24-hour liquidation data. Source: CoinGlass
The Bitcoin futures 24-hour liquidation data is a valuable resource for cryptocurrency investors. It provides a snapshot of how much Bitcoin is being traded on a daily basis and can help inform investment decisions.

It's interesting to see that the retail-driven exchanges (Binance and Bybit) represented a mere 17.4% of the total orders that were forcefully closed. This is despite their combined market share on Bitcoin futures being 30.6%. This leaves no doubt that the whales at OKX and FTX were the ones being squeezed.

Today's 10% pump in Bitcoin's price is interesting for a number of reasons, but one key metric to watch is Bitcoin's dominance of the cryptocurrency market. Bitcoin's market share has been steadily increasing over the past few months, and today's price pump is a good indicator that this trend is likely to continue.

Bitcoin dominance. Source: TradingView
Bitcoin dominance is something that many people are keeping an eye on. The reason is because it can give us an indication of which cryptocurrency is currently the most popular and widely used.

It's interesting to see how the indicator spiked from 39% to 40.5% recently - something that hasn't been seen since May 11th, when Bitcoin flash crashed below $26,000. It took another 31 days for the bear market to break the $28,500 support on June 12th. However, it's worth noting that a sharp increase in BTC dominance can happen during rallies and steep price corrections, so relying solely on this indicator may not provide much aid in interpreting market movements.

Fear has been erased from options markets, leaving investors feeling more confident.

Although the Bitcoin options "fear and greed" metric improved slightly, it is still at a neutral level. This suggests that investors are not feeling overly optimistic or pessimistic about the future of Bitcoin.

Bitcoin 60-day options 25% delta skew: Source: Laevitas.ch
According to Laevitas.ch, the 60-day options delta skew for Bitcoin is currently at 25%. This means that options traders are expecting a relatively large move in the price of Bitcoin over the next 60 days.

When option investors are fearful of a market crash, they tend to buy put options to protect their portfolios. This demand drives up the price of these options, and causes the skew indicator to move above 12%. However, when investors are excited about the market, the skew indicator moves to negative 12%. Currently, the indicator is at 12%, which is the very edge of the neutral market. This suggests that professional investors are no longer demanding excessive premiums for protective put options. The Bitcoin pump on Sept. 9 signaled that investors are becoming more confident in the market, and are no longer as fearful of a crash.

It's looking like Bitcoin may have finally found a bottom, according to three indicators. A $120 million liquidation on leverage shorts (bears) was concentrated on less "retail-oriented" derivatives exchanges, the 1.5% hike in Bitcoin's dominance rate and options traders pricing similar upside and downside risks all suggest that Bitcoin may have finally found a bottom. This is good news for Bitcoin investors, who have been waiting for a sign that the cryptocurrency is stabilizing.