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Bitcoin price is correcting

Bitcoin’s price was rejected near $58,000. However, derivatives data reveals traders are neutral-to-bullish, leaving enough “room” for a new all-time high in 2021. For the preceding two months, Bitcoin has outperformed most altcoins. However, that trend turned this week when (BTC’s) 20% gain drove its market capitalization past $1 trillion on Oct. 6. As a result, investors’ focus has turned back to the leading cryptocurrency, and altcoins are currently trading in the red for the day.

The current bullish trend may be harmful if Bitcoin traders become overconfident and leverage to establish long positions. Notice how the market capitalization of altcoins climbed by 5.8 per cent while Bitcoin increased by 20.8 per cent during the same period. There were certain outliers, such as Shiba Inu (SHIB), which increased by 200 per cent, Fantom (FTM), which increased by 60 per cent, and Klaytn (KLAY), which increased by 36 per cent. However, the total market capitalization of cryptocurrencies did not correspond to Bitcoin’s performance.

Like billionaire Wall Street investor Bill Miller, some well-known figures have recently expressed confidence in Bitcoin while raising worries about most altcoin ventures. Miller specifically highlighted “major institutions” involved and “massive quantities” of venture capital money pouring into Bitcoin. The macroeconomic scenario fuels the recent Bitcoin frenzy. The United States raised its debt ceiling by $480 billion to meet its obligations until early December. Inflationary pressures caused by never-ending stimulus packages and low-interest rates have fueled commodities’ long run.

The futures premium indicates that traders are slightly positive

The basis rate is calculated as the difference between longer-term futures contracts and current spot market pricing. This indicator is also often the futures premium. A yearly dividend of 5% to 15% should come in robust markets, a scenario known as contango. This price disparity is generated by sellers requesting more money to postpone payment for a longer time.

The recent 20% increase in the price of Bitcoin caused the indicator to approach the top limit of this neutral zone, indicating that investors are bullish but not overconfident. As witnessed in mid-May, when buyers require excessive leverage, the introductory rate might easily exceed 25%.

Bitcoin alternatives indicate a “neutral” sentiment

The delta skew of 25% compares similar call (buy) and put (sell) options. When “fear” is prominent, this index will turn positive because traders anticipate possible downside.

When option traders are optimistic, the 25 per cent delta skew indicator moves into the negative territory. Readings in the negative 8% to positive 8% range are neutral. The figure above illustrates that there hasn’t been a single incident of options traders being overconfident in the last six months. This would indicate “greed” because the 25 per cent delta skew has gone below minus 8%.

Those data appear to indicate a lack of buyer confidence, but the reality is precisely the reverse. If Bitcoin bulls were already overconfident around $57,000, there would be little room for more leverage, raising the possibility of a cascading liquidation if a brief market downturn happened. Bulls are cautiously optimistic, and even a 20% price drop is unlikely to change the situation because the futures market’s basis rate displays a reasonable premium following the recent gain.

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