BTC derivatives metrics currently mirror late-September readings which preceded a strong 62% move in Bitcoin price.
Bitcoin (BTC) has been below $45,000 for 14 days and is currently 40% below the $69,000 all-time high.
This movement holds similarities to late-September 2021, when Bitcoin price flat-lined for 11 days and was 36% below the previous $64,900 all-time high on April 14.
To understand whether the current price momentum mimics late September, traders should start by analyzing the Bitcoin futures contracts premium, which is also known as “basis.” Unlike a perpetual contract, these fixed-calendar futures do not have a funding rate, so their price will differ vastly from regular spot exchanges.
By measuring the expense gap between futures and the regular spot market, a trader can gauge the level of bullishness in the market.
Excessive optimism from buyers tends to make the three-month futures contract to trade at a 15% or higher annualized premium (basis).For example, earlier in September, the basis rate ranged from 9% to 13%, indicating confidence, but on Sept. 29, right before Bitcoin broke out above $45,000, the 3-month futures premium was at 6.5%.
Generally, readings below 5% are typically deemed bearish, so a 6.5% reading in late September meant investors were displaying low confidence.