Bitcoin price weakens, but BTC derivatives remain healthy

From cointelegraph by Marcel Pechman

Bitcoin  BTC$95,946  has struggled to rally above $98,000 from Nov. 25 to Dec. 2, frustrating investors despite achieving a 38% monthly gain. Market participants worry that prolonged consolidation below the $100,000 psychological barrier could embolden bearish strategies to suppress BTC's price.

Bitcoin 2-month futures annualized premium. Source: Laevitas.ch

Derivatives markets suggest resilience, with traders paying a 17% annualized premium for leveraged positions compared to the BTC spot price. While lower than the 40% levels typically observed during strong bull runs, the current premium reflects healthy bullish demand and does not indicate excessive optimism.

Even though Bitcoin has failed to surpass its $99,609 peak from Nov. 22, derivatives data reveals continued trader confidence. However, questions persist about the sustainability of recent aggressive buying, particularly from spot Bitcoin exchange-traded funds (ETFs), MicroStrategy, and Marathon Digital.

MicroStrategy  added 15,400 BTC  between Nov. 25 and Dec. 1, using $1.5 billion raised through a stock sale. The purchases were made at an average price of $95,976, increasing the company’s total BTC holdings to 402,100, currently valued at $38.4 billion—a 64% rise.

Similarly, Marathon Digital  acquired 6,484 BTC  between Oct. 1 and Nov. 30, spending over $600 million at an average price of $95,352 per coin. The firm announced plans to issue $700 million in convertible senior notes, aiming to acquire more Bitcoin while repurchasing existing debt.

It is inaccurate, however, to attribute Bitcoin’s price resilience solely to institutional purchases. Notably, spot ETFs have recorded  net inflows of $3.22 billion  since Nov. 18, according to Farside Investors. BTC was already trading above $90,000 before these inflows began, underscoring robust demand beyond corporate balance sheet additions.

Bitcoin options and futures indicate market confidence

Bitcoin 1-month put-call options delta 25% skew, %. Source: Laevitas.ch

Bitcoin options markets reflect optimism from whales and arbitrage desks, as put (sell) options trade at an 8% discount compared to call (buy) options. Typically, when traders feel uneasy about Bitcoin’s price, hedging demand rises, pushing this indicator above 6%.

Retail traders, although managing smaller positions than institutional players, also play a critical role. The 1,000% Bitcoin price surge in 2017, for instance, coincided with the Coinbase app topping download charts and peak Google searches for "buy Bitcoin." Hence, dismissing the influence of average traders would be shortsighted.

Related:  Bitcoin set for ‘insane long opportunities’ as it enters price discovery: Traders

To gauge retail leverage demand, monitoring perpetual contracts (inverse swaps) is essential. These contracts, which settle every eight hours, closely track the spot BTC price. The funding rate—used to balance demand between leveraged buyers and sellers—offers a key signal of market sentiment.

Bitcoin perpetual futures annualized premium. Source: Laevitas.ch

Normally, longs (buyers) pay a monthly funding rate of 0.5% to 2.1%. However, during periods of heightened excitement, this rate can spike to 6% or more. Presently, 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 poses no immediate liquidation risks.

Bitcoin's inability to breach the $98,000 level should not be interpreted as a weakness, given the robust state of BTC derivatives markets. Both institutional and retail participants exhibit confidence in Bitcoin’s continued bull run. The trend is supported by rising adoption among corporations and nations seeking BTC as a hedge against inflationary fiat currencies.