Bitcoin Traders Say $34K Bottomed, But Data Says It’s Too Early To Say

Bitcoin (BTC) price fell 23% in the eight days after the $45,000 resistance failed to break on Feb. 16. The $34,300 bottom on Feb. 24 occurred right after the Russia-Ukraine conflict escalatedleading to a sharp sell-off of risky assets.

As Bitcoin hit its lowest level in 30 days, Asian stocks also adjusted to deteriorating conditions, a fact evidenced by Hong Kong’s Hang Seng index which fell 3.5% and the Nikkei also hit a 15-month low. reached.

Bitcoin/USD at FTX. Source: TradingView

The first question to be answered is whether cryptocurrencies are overreacting compared to other risky assets. Sure enough, Bitcoin’s volatility is much higher than traditional markets, at 62% per year.

In comparison, the US small- and mid-cap Russell 2000 stock market index has an annualized volatility of 30%. Meanwhile, Chinese stocks, as measured by the MSCI China Index, are at 32%.

Bitcoin/USD (purple, left scale) vs. Hang Seng Index (blue) & Russell 2000 (orange)

There is a high correlation between Bitcoin, the Hang Seng stock market and the US Russell 2000 Index. One possible explanation is the tightening targets of the US Federal Reserve. By cutting bond buybacks and threatening to raise interest rates, the monetary authority has triggered a ‘flight to safety’.

Despite the nonexistent yields corrected by 7.5% inflation, investors often seek protection from US dollar cash positions and treasury setbacks. This is especially true in periods of extreme uncertainty.

Bitcoin Futures Traders Are Moderately Bearish

To understand how professional traders are positioned, one must follow Bitcoin derivatives. The annual premium of the Bitcoin futures should run between 5% and 12% to compensate traders for “locking in” the money for two to three months until the contract expires.

Bitcoin 3-month futures premium. Source: Laevitas

Levels below 5% are extremely bearish, while an annualized premium above 12% indicates bullishness. As shown above, the futures premium fell below 5% on Feb. 9, indicating a lack of confidence from professional traders.

While the current 2.5% represents the lowest level since July 20, this date marked a reversal of a 74-day price correction. In fact, a 71% rally followed that event, confirming the claim that the futures premium is a backward looking indicator.

Bitcoin/USD (blue) and 30-day correlation vs. Russell 2000 (purple). Source: TradingView

Note how Bitcoin’s correlation to the Russell 2000 Index was relatively high on July 20. However, that situation quickly reversed as BTC began its rally independent of traditional markets.

The bottom could be, but uncertainty could lead to further downward pressure

As with the futures premium, the correlation statistic uses historical data, so it should not be used to predict trend reversals. Investors, especially professional fund managers, tend to avoid highly volatile assets during turbulent markets.

Understanding market psychology is essential to avoid unexpected price swings. Therefore, as long as Bitcoin is considered a risky asset by market participants, these short-term corrections should be the norm rather than the exception.

Therefore, it makes sense to wait for further decoupling signals before predicting a Bitcoin bottom.

The views and opinions expressed here are solely those of the writer and do not necessarily reflect the views of Coin-Crypto. Every investment and trading move involves risks. You should do your own research when making a decision.

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