The continued rise in the price of bitcoin is lucrative for traders on cash and derivatives exchanges, however, there are several factors that could affect the trajectory of the currency. This article will delve into the danger signs to watch out for. Looking at the Bitcoin has a 24-hour variation of less than 0.50% and a weekly variation of 1.8%. A sudden drop in volatility could change the direction of Bitcoin’s price movement. s Mike McGlone, senior commodity strategist at Bloomberg Intelligence. Twitter.
He revealed a rather bullish stance on Bitcoin. Demand and adoption indicators have been favorable for the cryptocurrency over the past quarter. The forecast is bullish and Bitcoin could continue to rally until it hits a new high above $12,400. There have been some minor setbacks this week, however, overall the asset has maintained its positive momentum and its trajectory continues to rise. The question is, w What could go wrong with the cap?
Demand and adoption indicators
Currently, demand for bitcoin on currency crypto-exchanges is driven by new buyers and stock day traders. Indicators are likely to remain favorable only if there is enough liquidity from cryptocurrency exchange to cryptocurrency exchange and the demand matches to absorb it.
According to this chart by Chainalysis, BTC inflows to the exchange have varied almost daily from July 22, 2020 to the present. The highest point was $1.25 billion on July 27, 2020 and below $500 million on August 9, 2020. With highly volatile inflows, demand may not be able to absorb supply, which in turn leads to lower volatility.
Declining correlation with gold
The price of gold is volatile, leading to cycles of up and down prices, however, Bitcoin is more volatile. Due to this, the two assets are less correlated over the course of a year. c Currently, the correlation is high, over 50% in the past few weeks; the prices of both assets are steadily increasing. However, gold prices could stabilize and get corrected, which could lead to a decrease in the correlation between the two.
In addition, the current correlation may be traders’ reaction to the volatility and uncertainty in the global markets and the falling dollar, however, in the longer term, it may drive the correlation down to zero, or a negative value. When that happens, the price of bitcoin may not rise on the infamous “digital gold” narrative.
Increased market value and Defi
Defi’s market capitalization has been rising steadily over the past 90 days and currently stands at 21.26%.
The popularity and rise of Defi has steadily increased its market dominance, and while trader interest in both Defi and Ethereum is high, many Bitcoin day traders may be withdrawing from Bitcoin in the near future in hopes of making a quick buck in DeFi’s highly liquid and volatile market.
Increasing Bitcoin’s Open Positions
According to this chart from skew, open positions in bitcoin options are hitting record levels. This could be beneficial in the short term, however, it could be counterproductive to price growth in the long term.
Since July 27, 2020, the total number of open bitcoin options contracts has surpassed $20 B for the third consecutive time since July 27, 2020. The large number of open positions indicates anticipation and interest, however, traders are free to close out long call options before the expiration date. As such, the decline in open positions could raise a danger signal.
BTC options trading volume decreases
High trading volume in BTC options indicates higher interest in BTC at a given time. High trading volume indicates higher interest, and likewise, a decrease in BTC options trading volume is another danger sign to watch out for.
The unloading of call options could trigger a decline.
Open interest in Bitcoin options is at an all-time high with an increase in the total number of open contracts, however, this trend may not continue. The number of put options relative to calls and puts has picked up over the past week and traders are flooding the market with their call options.
The 45% call selling versus 13% call buying is a bearish guess on the price of Bitcoin, and if this continues for an extended period of time, a bearish phase could be in the offing.
Withdrawal of institutional investors
Demand for Bitcoin is consistently high due to combined institutional and retail interest. This, coupled with aggressive retail buying and speculative interest, led to a rally in price to $11,571. A popular contributor to institutional interest has been the derivatives market, which has provided impressive returns and attracted a range of traders. This points to the source of liquidity in the spot market and how it relies on derivatives and other available investment products. The risk management potential of the derivatives market is high, and if institutional interest drops here, a pullback could occur.
Financial uncertainty and a falling dollar are driving institutional investors to alternative investments and b Regardless of the reasons shared here, itcoin is likely to continue its growth trajectory. However, it is always better to be on the side of caution.