Bitcoin (BTC) has a long history of local peaks forming when events that the market expects to occur. The recent launch of the Bitcoin Exchange Traded Fund (ETF) on October 19 was no exception and saw monthly gains of 53% to an all-time high of $ 67,000.
Now that the price card has fallen below $ 60,000, investors are trying to figure out if a 10% retracement is a healthy short-term profit or the end of a trend. To determine this, traders need to analyze BTC’s past pricing activity to assess potential similarities.
Bitcoin price in USD. Source: TradingView
The chart above shows a day in November 2013 when a major New York Times announcement announced that “Bitcoin is receiving a discreet nod from China’s central bank.” At the time, Yi Gang, deputy governor of the People’s Bank of China, said people were free to participate in the bitcoin market. He even mentioned a personal opinion that provides a constructive long-term view of digital currency.
It is also worth noting that this positive media coverage on state-owned Chinese television was broadcast on October 28, showing the world’s first Bitcoin ATM in Vancouver.
Bearish events can also be expected.
Bearish examples can also be found through the 12-year bitcoin price movement. For example, China’s ban in April 2014 was a minimum of 5 months.
Bitcoin price in USD. Source: TradingView
In April 2014, China’s two largest exchanges, Huobi and BTC Trade, announced that their trading accounts in some local banks would be closed for a week. Again, rumors have been circulating since March 2014, and this was facilitated by a note in the Chinese news media Caixin.
Recent developments included the launch of the CBOE Bitcoin futures contract on December 19, 2017, which preceded an infamous all-time high of $ 20,000 per day. Another event that marked a local peak was the listing of Coinbase on Nasdaq when the price of bitcoin reached $ 64,900. Both events are shown in the following diagram:
Bitcoin price on Coinbase in USD. Source: TradingView
Note how all of the above events were largely predictable, although there was no exact announcement date for any of them. For example, the initial trading session for an index ETF based on bitcoin futures on October 19 was preceded by a statement on August 3 by Gary Gensler, head of the SEC, that the regulator would be open to accepting the implementation of BTC ETFs using CME derivatives.
Investors are probably already ahead of the launch of ProShares Bitcoin Strategy ETF, and a look at the BTC derivatives markets can provide more information on this.
Futures premiums are not overvalued
The futures premium, also known as the base price, measures the price gap between futures prices and the regular spot market. Quarterly futures contracts are the preferred instruments for whale and arbitration agencies. Although retailers may find this difficult due to settlement history and price differences in the spot markets, the main advantage for them is the lack of volatile financing rates.
Some analysts pointed to a “return of contango” after the peso reached 17%, a 5-month high.
Usually all types of futures markets (soy, S&P 500, WTIl) are traded at a slightly higher price than the regular spot market. This is mainly because the investor has to wait for the contract to expire to receive their payments, so opportunity costs arise and this entails a premium.
Annual Bitcoin premium with 3 months grace period. Source: laevitas.ch
Suppose someone makes arbitrage deals with the aim of maximizing the money that is in US dollars. This trader can buy stablecoin and earn 12% annual return by using Decentralized Finance (DeFi) or central crypto lending services. The 12% premium in the bitcoin futures market should be considered a “neutral” price for the market maker.
Apart from a short-term peak of 20% on October 21, the base rate remained below 17% after rising by 50% a month so far. In comparison: at the end of the launch of Coinbase shares, the futures premium rose to 49%. Therefore, those who call the current scenario make some excessively optimistic mistakes.
Liquidation risk was not “inevitable”
When buyers are over-insured and accept a large loan premium when using futures contracts, a price drop of 10-15% can lead to a repayment. However, having only an annual premium of 40% or more does not necessarily lead to an imminent risk of collapse, as buyers can add margins to keep positions open.