As the Bitcoin (BTC) price tries to support $ 37,000 on May 25, the recent low of $ 30,000 may be at its lowest level, indicating a derivatives market indicator with a history of accurate forecast for the periodic declines in BTC / USD after bearish cycles. .
The last time it was expected to bottom out was on November 1, after which the cost of buying a single Bitcoin jumped from $ 13,771 to $ 64,899 on Coinbase.
Anatomy of a bullish marker
This indicator, called the “moving base”, mathematically represents the relative difference between future price and spot price on an annual time frame. For example, if the Bitcoin contract trades at a premium of 2.5% from the initial 3-month spot rate, the annual sliding base is 10%.
In retrospect, it can be said that assets in the futures market are traded either at a discount or at a premium. When the spot price of an asset is higher than the forward rate, it is called the standard (discount). On the contrary, when the spot price is traded at less than the futures price – which is typical in traditional financial markets – it “reflects the contango (premium).”
Bitcoin futures markets tend to fluctuate between delay and delay. An extreme contango often indicates the top of a beef market. On the contrary, a sharp decline helps to find potential bottom in a bear market.
For example, in June 2019, OKEx’s bitcoin futures market saw a contango increase over 3.5%. During the same period, it reached a peak of 6.8% when Bitcoin crossed the $ 11,000 value. However, the spot price BTC / USD continued to rise until it reached $ 14,000. The couple then entered a bear market for several months, eventually reaching the bottom around $ 3100 in December 2019.
Example of Contango Bitcoin Futures June 2019 Source: TradingView
Ben Lilly, a cryptoeconomist at Jarvis Labs, has matched the annual moving base chart of three-month Bitcoin futures with spot Bitcoin prices, indicating that when the former approaches or closes below 1%, the latter takes it as a signal to the bottom and initiate a new growth cycle.
The vertical lines show the day the Bitcoin base reached 0%. Source: TradingView
The BitMEX chart above illustrates several cases where the moving base reading has fallen below 1% during Bitcoin’s downward movements in the spot market. Later, the cryptocurrency began to experience a rebound – a new bullish cycle – before correcting again to find a new low when the slippery bottom falls below 1%. Rinse and repeat.
For example, in March 2020, during the global market crash caused by Coronavirus, bitcoin futures recorded an increase in decline to almost minus 14%, meaning a bottom of bitcoin in the spot market of around $ 3858.
Bitcoin futures settlement rule starting May 25th
Lilly shared a skewed chart showing that the annual sliding base for BTC futures fell below 1% for the first time since November 2020.
The Bitcoin base fell below 1% after the May crash in the spot markets. Source: Skew
“This looks promising when it comes to finding the bottom,” Lilly notes in her newsletter.
“It brings us back to why we use financing rates so much. Because when people think that the cryptocurrency is about to run out and go into the fold, it bounces back.”
He added that based on baseline alone, this is a good time for Bitcoin spot traders to accumulate, although he noted that this does not involve taking delivered long positions in the futures market.
In the derivatives market, the risk was higher due to the lack of bullish trading. Lilly said sales pressure has not eased even after $ 6 billion hit the market, indicating that traders want to use stable dollar-denominated currencies to buy cryptocurrencies such as Bitcoin.
“We are now flying in the neutral zone,” he added.
The data came when Bitcoin showed extreme discrepancies in the short-term imbalance, and solved daily price fluctuations in previous sessions. In Monday’s session, the BTC price was rejected by $ 40,000 resistance.
BTC is currently trying to find support for $ 37,000, which is almost 40% during the peak period.