Bitcoin price weakens, but BTC derivatives remain healthy – Cointelegraph

Bitcoin (BTC) struggled to rise above $98,000 from November 25th to December 2nd, frustrating investors despite achieving a 38% monthly gain. Market participants are concerned that if the price continues to consolidate below the psychological barrier of $100,000 for an extended period of time, bearish strategies to suppress the BTC price may become active.

Derivatives markets are signaling resilience, with traders paying a 17% annualized premium for leveraged positions compared to BTC spot price. While lower than the 40% level typically seen during strong bull markets, the current premium reflects healthy bullish demand and does not represent overly optimistic sentiment.

Although Bitcoin failed to break above its all-time high of $99,609 from November 22nd, derivatives data reveals continued trader confidence. However, questions remain about the sustainability of recent aggressive buying by Spot Bitcoin Exchange Traded Funds (ETFs), MicroStrategy, and Marathon Digital, among others.

MicroStrategy used the $1.5 billion raised from the stock sale to add 15,400 BTC between November 25th and December 1st. The purchases were made at an average price of $95,976, increasing the company's total BTC holdings to 402,100 bits and a current value of $38.4 billion, an increase of 64%.

Similarly, Marathon Digital acquired 6,484 BTC between October 1st and November 30th, spending over $600 million at an average price of $95,352 per coin. The company announced plans to issue $700 million in convertible debt with the aim of acquiring more Bitcoin while buying back existing debt.

However, it is inaccurate to attribute Bitcoin's price resilience solely to institutional purchases. Notably, spot ETFs have recorded net inflows of $3.22 billion since November 18, according to Pharcyde Investors. BTC was already trading above $90,000 before these inflows began, confirming robust demand beyond corporate balance sheet additions.

Bitcoin options and futures show market confidence

The Bitcoin options market reflects the optimism of whales and arbitrage desks, as put (sell) options trade at an 8% discount compared to call (buy) options. Typically, when traders are worried about the price of Bitcoin, demand for hedging increases, pushing this indicator above 6%.

Individual traders also play an important role, although they manage smaller positions than institutional investors. For example, the 1,000% spike in Bitcoin prices in 2017 coincided with the Coinbase app topping the download charts and the peak of “buy Bitcoin” in Google searches. Therefore, it would be short-sighted to ignore the influence of the average trader.

Related: Bitcoin preparing for 'very long window of opportunity' for price discovery: traders

Monitoring perpetual contracts (inverse swaps) is essential to gauging retail leverage demand. These contracts are settled every 8 hours and closely track the spot BTC price. Funding ratios are used to balance demand between leveraged buyers and sellers and are an important signal of market sentiment.

Typically, longs (buyers) pay monthly funding rates of 0.5% to 2.1%. However, during times of heightened excitement, this percentage can jump to more than 6%. Currently, the 1.4% cost paid by leveraged longs falls within the neutral range. Even last week's temporary peak of 3.5% is not alarming and does not pose a risk of immediate liquidation.

Bitcoin’s inability to break out of the $98,000 level should not be interpreted as weakness given the robust state of the BTC derivatives market. Both institutional and retail participants are expressing confidence in the continuation of the Bitcoin bull market. This trend is supported by increased adoption among businesses and nations seeking BTC as a hedge against inflationary fiat currencies.