Bitcoin price is down, but data signals that $30K and above is the path of least resistance

On July 24, Bitcoin (BTC) experienced a flash crash, plummeting to $29,000 in a movement now attributed to significant BTC holders potentially liquidating their positions. 

Amidst the crash and market uncertainty, Bitcoin’s three major trading metrics continue to project a bullish outlook, signifying that professional traders have not reduced their leverage longs through the use of margin and derivatives.

Analytics firm Glassnode reported a surge in whales’ inflow to exchanges, reaching its highest level in over three years at 41% of the total. This forceful sell-off from whales alarmed investors, especially in light of the absence of any significant negative events impacting Bitcoin in the past month.

Notably, a major concern stems from the ongoing court cases by the U.S. Securities and Exchange Commission (SEC) against leading exchanges, Binance and Coinbase. Still, there hasn’t been any major advancement on those cases, which will likely take years to settle.

Bitcoin’s price crash might have been related to the U.S. dollar reversion

Despite historical volatility, Bitcoin’s crash became more pronounced following 33 consecutive days of trading within a tight 5.7% daily range. The movement is further accentuated by the S&P 500 gaining 0.4%, crude oil rising by 2.4%, and the MSCI China stock market index surging by 2.2%.

However, it is essential to consider that the world’s largest global reserve asset, gold, experienced a dip of 0.5% on July 24. Furthermore, the dollar strength index (DXY) reversed its two-month-long trend of devaluation against competing fiat currencies, climbing from 99.7 to 101.4 between July 18 and July 24.

The DXY index measures the strength of the U.S. dollar against a basket of foreign currencies, including the U.K. Pound, Euro, Japanese Yen, Swiss Franc and others. If investors believe that the U.S. Fed will manage a soft landing successfully, it makes sense to reduce exposure to gold and Bitcoin while increasing positions in the stock market. Lower odds of a recession can positively impact corporate earnings.

Margin and derivatives markets show resolute professional traders

To understand whether Bitcoin’s price move down to $29,000 has successfully ruptured the market structure, one should analyze margin and derivatives markets. Margin trading allows investors to leverage their positions by borrowing stablecoins and using the proceeds to buy more cryptocurrency.

The margin lending of OKX traders based on the stablecoin/BTC ratio rose between July 22 and July 24, suggesting that professional traders added leveraged long positions despite the recent price crash.

Traders should corroborate this data with derivatives to ensure its market-wide impact. In healthy markets, BTC futures contracts typically trade at a 5 to 10% annualized premium, known as contango, which is not exclusive to crypto.

Notice how the indicator sustained a healthy 5.7% average annualized premium, slightly lower than two days prior but still within the neutral range. This data confirms the resilience of margin markets, but to gauge market sentiment further it’s also helpful to look at the options markets.

The 25% delta skew can reveal when arbitrage desks and market makers charge higher prices for protection against upside or downside movements. In short, a skew metric rising above 7% suggests traders anticipate a drop in Bitcoin’s price, while periods of excitement generally yield a negative 7% skew.

The 25% delta skew remained negative, indicating that bullish call options were trading at a premium compared to protective puts. This further supports the thesis that professional traders remain unfazed by the flash crash, with no evidence indicating pessimism among whales and market makers.

The path to $30,000 and above shows the least resistance

All factors considered, irrespective of the rationale behind the price move on July 24, Bitcoin bears could not dampen investor optimism, resulting in higher odds of a recovery above $30,000 in the short term. Notably, the mere appreciation of the U.S. dollar does not impact Bitcoin’s predictable monetary policy, censorship resistance and autonomous nature as a means of payment.

On the brighter side, there are some positive triggers on the horizon, including the possible approval of a spot Bitcoin ETF and gaining regulatory clarity. Proof of this comes from a recent U.S. bill introduced on July 20 that seeks to establish a clear process for determining the classification of digital assets as commodities or securities. If the bill becomes law, it would give the Commodity Futures Trading Commission (CFTC) authority over digital commodities.