Key Bitcoin price metric shows pro traders are nervous about $19K BTC

Sunday 22 November 2020, 4:37 AM AEST - 3 days ago

This week Bitcoin (BTC) price rallied to a new 3 year high at $18,965, leading investors to believe a new all-time high above $20,000 is on the cards.

While these are exciting times, data does show that some professional investors feel antsy about the price at these levels and the absence of retail FOMO has some calling for a sharp pullback.

Data shows Bitcoin hasn't seen a drop larger than 5% since Sept. 4 and over the past 77 days the digital asset has gained 84%.The last time similar price action was observed was on Nov. 25, 2019.

f570447e-e971-4e4f-bdef-d1e15911207c.pngBitcoin price (USD) at Bitstamp. Source: TradingView

Back then, BTC made a 47% move from $6,900 to $10,150 by mid-February 2020, a 86 day sequence. Nevertheless, one should not jump to the conclusion that a substantial correction necessarily follows every movement without a 5% daily drop.

Evidence of such disparate expectations can be extracted from the futures contracts basis. Typically, the indicator should display a 3% to 10% annualized premium.

1ab4e955-6af3-4f8d-af0b-f722644e044b.pngBTC 3-month futures contract premium, January 2020. Source: Skew

Take notice how traders were willing to pay an additional 20% annualized to carry leveraged positions back in February. This is rather unusual and a signal of extreme optimism.

This time around, the basis indicator has been gravitating near 10%. Therefore, it is safe to infer that the odds of cascading sell order liquidations is much lower this time.

c72c9a1e-7f12-4167-a0d9-610924ff9260.pngBTC 3-month futures contract premium. Source: SkewLack of optimism is a sign of reduced conviction

Traders have been taken aback by this unusual trend, and data confirms that there is a complete lack of conviction. Even though the BTC futures contracts premium currently stands at a bullish zone, that validify buying it indiscriminately.

To effectively gauge whether professionals have been carrying lo ...

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