A Bitcoin (BTC) trader underlined 23 important technical and basic aspects that could uplift BTC’s medium-term bull activity. The information shared by the trader, known as ‘Byzantine General,’ could be split into four main themes, which we listed and detailed below.
The Bitcoin Futures Market is Neutralizing
After Bitcoin’s rebound from $10,300, a continual narrative around the king coin has been its negative fund rates. The Bitcoin futures market puts into function a system known as ‘funding’ in order to prevent the market from mainly swaying to one side. Therefore, when the market is primary bullish, investors betting on BTC increasing compensate short-sellers, and vice versa.
During the past week, the funding rate of Bitcoin has either remained negative or neutral in spite of its plummeting price. That meant short-sellers kept betting against BTC, but there were not sufficient long contracts to compress.
The funding rates of Bitcoin. [Image Source: Skew]
The minor probability of a long squeeze ultimately made the market sentiment change; shorting Bitcoin became an overcrowded trade almost immediately, which created a short squeeze. The trader underlined the fact that the consistently negative or fundamental funding rate is a positive aspect for BTC.
He explained: “First of all, there is funding – one of the best indicators to gauge market sentiment. After the drop from 12K, it has been consistently negative or baseline at best. Secondly, we have the contango index. This shows the difference between the price of SPOT exchanges & derivatives exchanges. When SPOT has higher prices, the indicator goes lower, into the green zone. A consistent premium for SPOT exchanges is considered bullish.”
For swing traders like Byzantine General, who consider and carry out longer-term trades over short-term ones, changing market sentiment is vital.
The Cryptocurrency Market is Less Leveraged
Bitcoin originally rejected the $12,000 to $12,500 resistance zone on August 17th, then again on September 2nd. The two rejections of BTC at a crucial resistance zone were aggressive for futures traders; in the next two weeks following the consecutive rejections, the open interest of futures exchanges quickly dropped.
The term ‘open interest’ details the total sum of active long and short contracts in the futures market. Simply put, it shows the dollar amount of bets on BTC price actions. The dramatic dip in futures open interest meant fewer users have been trading BTC with extra leverage. Significant futures exchanges in the cryptocurrency market support up to around 125x leverage, and usually, the high leverage comes with the chance of massive price changes.
When it comes to the medium-term trend of BTC, the trader said it is optimistic: “Is the market over-leveraged? The 12k range was absolutely brutal. We had multiple days of more than half a billion in liquidations. About a billion of OI got wiped out since the peak in the 12k range.”
The Market is Not Overheated Anymore
On-chain indicators could be used in estimating the sentiment around the Bitcoin market by assaying address activity and profits.
Bitcoin net MPL indicator. [Image Source: Byzantine General]
As per the net MPL indicator the trader referred to, the Bitcoin market is not that overheated as it was before. Just like prior bull cycles, the trader said it made the cryptocurrency market reset.
He noted: “The net MPL indicator. This shows that the market isn’t overheated anymore. We recently had a reset. Red zones are great buy zones. When we look at the previous bull-run in 2017, we can see that those small resets are turning points where momentum picks up again.”
The crypto fear and greed index also depicts that the market sentiment has become rather neutral after BTC’s recent rebound.
Crypto fear & greed index. [Image Source: alternative.me]
Fundamentals are Becoming More Powerful
At its heart, Bitcoin is a decentralized blockchain network that is kept by computing power paid by miners. Therefore, hashrate is usually considered a key metric to estimate the basic fundamental strength of the blockchain.
Hash ribbon indicator on top of BTC price chart. [Image Source: TradingView.com]
The hash ribbon indicator appears when miners go through a capitulation stage where they sell massive amounts of Bitcoin. Even though the sell-off originally puts selling pressure on BTC, afterward, BTC usually rebounds.
The trader explained: “Let’s take a look at some fundamentals. Hash ribbons recently gave two consecutive buy signals. These signals happen during the first recovery after miner capitulation. The bitcoin production cost is currently green. Simply put, this means that miners are potentially taking losses. Maybe it’s not very intuitive, but historically speaking, these are amazing buy opportunities.”
The conjunction of strengthening fundamentals and technical factors hints to a less-overheated market and brings on the likelihood of more upside.