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3 reasons that Bitcoin’s fall to $ 56,500 may have marked the local low

The absence of cascading liquidations, 25% delta skew, and margin loan ratio suggest that Bitcoin’s price hit a low at $ 56,500.

The first rule of Bitcoin (BTC) trading should be «expect the unexpected». In the last year alone, there have been five instances of daily gains of 20% or more, as well as five intraday declines of 18%. Truth be told, Bitcoin’s price volatility over the past 3 months has been relatively modest compared to recent spikes.

Whether they are multi-million dollar institutional fund managers or retail investors, traders new to BTC are often mesmerized by a 19% correction after a local high. Even more surprising to many is the fact that the current Bitcoin price correction of $ 13,360 from the all-time high of $ 69,000 on November 10 occurred in nine days.

The downward movement did not cause alarming sales

Cryptocurrency traders are notoriously known for their high-leverage trading and in just the last 4 days, nearly $ 600 million in long (buy) Bitcoin futures contracts were settled. That might sound like a pretty decent figure, but it represents less than 2% of the total BTC futures markets.

The first evidence that the 19% drop to $ 56,000 marked a local low is the lack of a significant sell-off event despite strong Bitcoin price movement. Had there been excessive leverage of buyers at stake, a sign of an unhealthy market, open interest would have shown an abrupt turnaround, similar to that seen on September 7.

The risk indicator of the options markets remained calm

To determine the degree of concern of professional traders, investors should analyze the 25% delta skew (25% delta bias). This indicator provides a reliable view of the sentiment of «fear and greed» by comparing similar call and put options.

This metric will turn positive when the premium for risk-neutral to bearish put options is higher than that of risk-like call options. This situation is often considered a «scary» scenario. The opposite trend signals bullishness or «greed.»

Values ​​between negative 7% and positive 7% are considered neutral, so nothing out of the ordinary happened during the recent test of the $ 56,000 support. This indicator would have skyrocketed above 10% if professional and arbitrage traders had detected higher risks of market collapse.

Margin traders continue to go long

Margin trading allows investors to borrow cryptocurrencies to leverage their trading position, thereby increasing profits. For example, one can buy cryptocurrencies by borrowing Tether (USDT) and increasing their exposure. On the other hand, Bitcoin borrowers can only go short as they bet on the price decline.

Unlike futures contracts, the balance between margin longs and shorts is not always even.

The chart above shows that traders have borrowed more from USDT recently, as the ratio increased from 7 on November 10 to 13 today. The data is sloping higher because the indicator favors stablecoin lending by 13 times, so this could be reflecting its positive exposure to the price of Bitcoin.

All of the above indicators show resistance to the recent Bitcoin price drop. As mentioned above, anything can happen in the crypto space, but the derivatives data hints that $ 56,000 was the local low.

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