The correlation between bitcoin (BTC) and stock markets has been extremely high since mid-March, meaning that both asset classes have shown almost identical directional movements. These data could explain why most traders are dismissing the 10% rally above $21,000, especially considering that S&P 500 futures have gained 4% in two days. Still, bitcoin trading activity and the derivatives market have been strongly supporting recent gains.
Curiously, the current bitcoin rally came a day after the White House Office of Science and Technology Policy released a report on the energy use of digital assets. The study recommends the implementation of reliability and energy efficiency standards. She also recommends that federal agencies provide technical assistance and initiate a collaborative process with industry.
Note that the peaks and troughs on both charts tend to be at the same time, but the correlation varies depending on investors’ perception and assessment of risk. For example, between May 2021 and July 2021, the correlation was reversed for most of the period. Overall, the stock market posted steady gains while cryptocurrency markets fell.
More importantly, the chart above shows that a huge gap opened up between bitcoin and the stock market as stocks rallied from mid-July to mid-August. It would be better to compare using the same scale, but it doesn’t work because of the difference in volatility. However, it is reasonable to conclude that these gaps were closed historically.
S&P 500 futures are down 18% in 2022 through September 6, while bitcoin has fallen 60.5% over the same period. It is therefore logical to assume that if investors’ appetite for riskier assets yields, higher volatility assets will fare better during rallies.
However, other factors come into play and there is no way to predict the outcome. But investors’ risk appetite would allow bitcoin to outperform the stock market and significantly reduce the difference in performance.
Professional Traders didn’t expect Bitcoin to pay off
Bearish traders liquidated $120 million worth of futures, the highest figure since June 13. In principle, one would not expect such a result since bitcoin was down 13% in the two weeks before September 7, but it can be assumed that the short sellers (bears) were surprised when which rushed the liquidation engine of the stock market. purchase these orders.
However, other anecdotal evidence is hidden in the liquid data provided by derivative exchanges.
Note that retail exchanges (Binance and Bybit) make only 17.4% of the total orders closed forcibly, while their combined Bitcoin futures market share is 30.6%. These data leave no doubt that the OKX and FTX whales were pressed.
Another interesting piece of data that sets the September 9 10% pump apart is the dominance of bitcoin, which measures its market share against all other cryptocurrencies.
Note how the indicator jumped from 39% to 40.5%, which was not seen since May 11, when bitcoin flash fell below $26,000. It took another 31 days for the bear market to break through the $28,500 support on June 12. Also note that a sharp increase in BTC dominance can occur during rallies and sharp price corrections, so the help must rely only on these indicators to interpret market movements.
Fear has been eradicated from the options markets
The 25% delta skew, which is the main “fear and greed” measure of Bitcoin options has improved enough to enter a neutral level.
If options investors were afraid of a price crash, the skew indicator would top 12%, and investor excitement would typically show a negative skew of 12%. After reaching a peak of 18% on September 7, the indicator is currently at 12%, which is the limit of the neutral market. Therefore, Bitcoin Pump reported on September 9 that professional investors are no longer demanding excessive premiums for defensive options.
These three indicators confirm the relevance of bitcoin’s recent 10% pump. A $120 million sell-off in bearish short positions focused on smaller “retail-focused” derivatives exchanges, the 1.5% rise in bitcoin’s sovereign rate, and option traders’ assessment of similar upside risks and downsides to bitcoin’s potential at the end. got bottom.
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