Bitcoin Fails to Break $21,000 Support

Bitcoin (BTC) added 3.4% to US stock market gains on October 28 while the S&P 500 index hit a 44-day high. In addition, recently released data showed that inflation may be slowing, giving investors hope that the Federal Reserve could break its streak of rate hikes by 75 basis points after the November meeting.

In September, the core price index for personal consumption expenditures in the United States rose 0.5% from the previous month. Although still an increase, it was in line with expectations. These data are the Federal Reserve’s main measure of inflation for modeling interest rates.

Other positive news came from tech giant Apple, which reported weak iPhone revenue on Oct. 27 but beat Wall Street estimates for quarterly profit and margin. In addition, Luca Maestri, Apple’s CEO, said that the services will see year-over-year growth in the fourth quarter.

Bitcoin Futures Data Shows Buyer Reluctance

Quarterly futures are generally avoided by retail traders because of their price difference from spot markets. However, they are the preferred instruments of professional traders because they avoid constant fluctuations in contract funding rates.

These fixed-month contracts typically trade at a small premium to spot markets, as investors demand more cash to maintain a settlement. But this situation is not exclusive to cryptocurrency markets, so the future should trade at an annual premium of 4% to 10% in healthy markets.

The bitcoin futures premium remains below 2% over the past 30 days, indicating a complete lack of interest from leveraged buyers. Also, there was no significant improvement on October 29, when BTC raised the $21,000 resistance.

In summary, derivatives traders are far from optimistic about the price of bitcoin, despite the low cost of adding bullish positions. However, BTC margin markets must also be analyzed to rule out externalities specific to the futures instrument.

Derivatives traders are unwilling to place bullish bets

Margin trading allows investors to borrow cryptocurrencies to increase their trading position, potentially increasing their returns. For example, one can buy bitcoin by borrowing Tether (USDT), which increases one’s exposure to cryptocurrencies. By contrast, bitcoin can only be borrowed to be sold short – betting on the price falling.

Unlike futures contracts, the balance between margin lending and short selling is not necessarily the same. When the margin loan ratio is high, it indicates that the market is bullish – on the contrary, a low loan ratio signal that the market is bearish.

The chart above shows that investor sentiment took a hit on October 13, when the ratio reached 23.5, which is rarely sustainable in the long term. From then on, OKX traders made fewer requests to borrow Tether, only to be used to bet on the rise in price.

Still, the ratio is currently at 7.5, which is bullish in absolute terms, as it mostly favors stablecoin lending. It is worth pointing out that there was no change in sentiment despite bitcoin’s weekly rise of 7.5% between October 24 and 31.

Lack of enthusiasm is not the same as decline

Derivatives data shows no demand from buyers, even when bitcoin touched $21,000 on October 29. Unlike retail traders, these experienced whales tend to stick by their convictions, even when markets are moving in the opposite direction.

The data above suggests that traders expecting bitcoin to break above $21,000 in the short term are likely to be disappointed. However, there is a positive note: there was no sign that the bears are getting more confident as both futures and margin markets remain on the neutral to bullish trend.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Cointelegraph. All investment and business transactions involve risk. You should do your own research before making a decision.