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Long-Term Holders and Derivative Market Traders See Opportunity with the Current Bitcoin Price

Long-Term Holders and Derivative Market Traders See Opportunity with the Current Bitcoin Price

By Mike Ermolaev | ChangeNOW and others | 12 Aug 2022


Bitcoin trading above the 50-day simple moving average is a bullish indicator for the bitcoin price and many long-term holders are taking note.

As a retail trader or someone who just got started with bitcoin not long ago, you may be searching for clues about what to expect next with its price. A second opinion is also important for seasoned bitcoin investors to compare their own perspectives.

Analyzing BTC Futures Open Interest

Bitcoin open interest provides insight into how much money is flowing into and out of the bitcoin derivatives market. Derivatives like bitcoin futures and perpetual swaps are used by traders to speculate on whether bitcoin's price will rise or fall without having to own the digital asset. A higher bitcoin open interest means more traders have opened positions, while a lower one means more traders have closed them.

As of writing, bitcoin-denominated open interest had increased to 571,000 BTC from around 350,000 BTC at the start of April 2022. A look at the bitcoin denomination can help isolate periods of increased leverage from price fluctuations.

BTC Futures Open Interest

Source: Coinglass.com

In USD terms, current open interest is $13.81 billion, which is relatively low, comparable to early bull market levels in January 2021 and June 2021 sell-off lows.

Whenever there is a large increase in open interest on a BTC basis, but not on a USD basis, that signals markets are taking on more BTC exposure, but still don't expect it to move much.

 

Funding Rates Rise for Perpetual Swaps  

In order to understand how most traders are positioned in the market, we can look at funding rates used on perpetual swap contracts: derivative financial contracts unique to bitcoin and cryptocurrency that have no expiration date or settlement. They allow traders to use leverage — up to 100x — when betting on the price of bitcoin. A funding rate is a periodic payment made to or by a trader who is long or short based on the difference between the perpetual contract price and the spot price.

Generally, we can say that positive funding rates indicate traders are taking long positions and are generally bullish about the price moving upward, whereas negative funding rates indicate traders are usually taking short positions and are generally bearish, believing the price will move downward. Funding rates breaking above 0.005% signal increased speculative premium, a trend that is currently occurring.

BTC Price vs Funding Rate

Source: LookintoBitcoin 

 

The Bitcoin Price Is Above Its 50-day Simple Moving Average

Analysts like myself who use technical analysis charts and patterns to make investment decisions note that Bitcoin is currently trading above its 50-day simple moving average (SMA), an effective trend indicator, for the first time since mid-July. This confirms that underlying momentum may be building. 

BTC USD Chart

Source: TradingView 

 

Long-Term Holders See Bitcoin as an Appealing Risk/Reward Investment

Below is another chart that visualizes how long-term BTC holders feel about bitcoin relative to its price. Bitcoin's long-term holders are generally better at identifying the best time to buy and sell bitcoin. This is not surprising, since they have more experience in the field than newcomers who are just getting started. It is important to recognize when they are confident that the number one cryptocurrency will rise in price in the future.

The reserve risk chart is currently in the green zone, meaning a high level of confidence combined with a low price, making bitcoin an attractive risk/reward investment. Investors who invest during green reserve risk have historically enjoyed high returns over time.

Conclusion 

Market perceptions of various savvy market participants, who have traditionally been smart in making their investment decisions, show that they are increasingly confident about the future of bitcoin price and are willing to take on more price risk. There is a cautious upward bias in bitcoin derivatives markets and long-term investors appear to be fairly confident. The bitcoin price is also showing signs of improvement based on technical indicators.

 

Disclaimer: This is not financial advice. All opinions, statements, estimates, and projections expressed in this article are solely those of Mike Ermolaev, PR Head at ChangeNOW.


P.S. This article was first published on Bitcoinmagazine.

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Mike Ermolaev
Mike Ermolaev Verified Member

Not giving any financial recommendations, just my views on the market. Always DYOR


ChangeNOW and others
ChangeNOW and others

Hey, here I will share our ChangeNOW updates and my own articles. You are mostly welcome to find me on Twitter btw: https://twitter.com/mike_changenow

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