Earlier today, the price of Bitcoin (BTC) reached $ 18,476 after an impressive 35% increase that seems to have started in early September.

This strong move was followed by a correction to $ 17,000 – a natural decline. This adjustment has led some investors to wonder if the current configuration is similar to the $ 13,850 peak formed in July 2019.

At the time, there was a 30% drop after a similar volume increase, after which it took Bitcoin 14 months to reach the $ 13,850 level. Coincidentally, there was a sharp collapse immediately after this internal rally, but the price recovered and eventually settled at around $ 12,800.

If something like this happens this time, investors expect a fall of $ 13,000 in the current cycle. Apart from the rapid crash after a strong rally, what other indicators mimic the price action in July 2019?

The first step is to analyze the underlying futures index, which can be interpreted as investor optimism. The basis, also often referred to as the futures premium, measures the premium on long-term futures contracts at the current level (traditional markets).

Fixed month futures contracts usually trade for a small premium, which indicates that sellers are asking for more money to stop the settlement for a longer period. In healthy markets, futures contracts must be sold at an annual premium of 5% or more, known as contango.

Some over-optimism could have arisen when the benchmark index reached 20% on 23 June. However, it has maintained a very good level, having adjusted the price completely in 2019.

The above chart can be interpreted as an absolute reluctance to cut long positions. The move came despite a sudden crash of $ 2000 followed by a 30% correction from the top.

Ironically, even the 30% crash that followed the $ 13,850 high reduced futures premiums. In general, a downward trend has a significant impact on the underlying indicator.

Fast forward to the current scenario, and there is not a single instance of over-optimism on the same scale.

Year-over-year, 3-month Bitcoin futures, November 2020 Source: Skew
The chart above shows that the underlying index is rapidly falling below 10% just after the $ 18,500 peak was formed. To further distinguish the current price movement in July 2019, two weeks before the price peak, the future premium reached 0%, which is a clear sign that investors are in a bad mood.

This time, the lowest level in the last two weeks was 7%. This means that investors have maintained their positive outlook over the past two months, while the market faced a wild, fast and optimistic rally in July 2019.

Option traders were not very optimistic before they pumped
To better measure current market sentiment, investors must also evaluate the option spreads. The 25% delta deviation indicator will be negative when the call options (neutral / bullish) are more expensive than the corresponding put options. The scale usually varies from -20% to + 20% and reflects current market sentiment.

Ironically, bitcoin experienced an 80% rally in three weeks, leading to a peak of $ 13,850, but the options market seemed unprepared for it. At that time, trend protection with call options traded at the same premium as bearish positions.

Thus, we can conclude that option traders assessed the probability of large market fluctuations in all directions. This has not happened recently, as the indicator for 25% delta deviation shows.

Over the last 30 days, this option sentiment barometer has indicated a trend. Traders are reluctant to sell uptrend protection, bringing the rejection index to its unprecedented 30% level.

Since professional traders demand a large premium for bullish call options, one cannot help but conclude that sudden price dumping is far from their expectations.

Investors should not make decisions based solely on interpreting an indicator that options traders are too optimistic right now. These traders will be surprised and therefore not eager to go short.

There are fundamental differences between the July 2019 summit and the current market in terms of futures and options markets. This indicates no sign of a 30% decline in the next few days.

Source: CoinTelegraph

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