Every serious investor has been tracking Bitcoin’s evolution at one point or another and has heard of the great impact Bitcoin has had on the global market, its foreseen future in the market, and how various markets manipulate the Bitcoin price. This is almost similar to the sharp shifts in the price caused by Huobi trades and the OKEx liquidations.
Given that derivatives markets are greatly influencing price swings for Bitcoin, it has become a necessity for leading metrics professional traders to evaluate the keys and methods they use to evaluate, understand, and predict activities in the market.
Reviewing the said market activities can be a task. However, the benefits outweigh any complications that preceded it since the retail traders gain enough knowledge to infer the inverse swaps, option skews, futures premiums, and the put-call ratio, which are the four indicators giving Pro Bitcoin traders hope.
Inverse swaps
Inverse swaps, otherwise known as perpetual futures funding rates, ensure no exchange risk imbalances occur by enforcing an embedded rate charged every eight hours. This is because, even with the matching buyer-seller open interests, their pull may differ, causing a conflict of interest.
Let us expound on this.
At times, the longs (buyer) demands more leverage. When this happens, the inverse swap becomes positive, meaning that the longs will pay the fees. This positive is recorded more during the pull period because buyers are in greater demand then.
However, too much leverage from the buyers can cause prices to drop due to liquidation, which can be problematic. The goal is to keep the rate at 2% or below to maintain a balance between traders and buyers.
Futures premium
Bitcoin traders look at futures premiums to gauge a futures contract’s long-term financial expenses compared to where the contracts stand in the current traditional market. This shows a lot of hopefulness on the traders’ side because by using the fixed-calendar futures used to trade, they get a clearer perspective on the end of their trades.
Option skews
Option skews have two categories;
- Buyer ( call option)
- Seller (put) option
The call options allow the buyer to purchase BTC at a fixed price on the expiry date while the seller should make the sale.
Traders should make it mandatory to closely monitor situations that may prove extreme, indicating that traders are unwilling to take either risk.
For instance, repetitive variations in rates are normal and can be interpreted as either bullish or bearable. However, a flat rate or close to zero rates should be a cause for concern.
Option put-call ratio
Option-put call ratio is used to measure the overall activities going through the calls and put options. The put ratio measures the bearish strategies, while the call ratio measures the bullish scenario.
Generally, this indicator totals activities in the bitcoin market, among them being the calendar month.
As of this date, these four indicators are the strongest influencers for the bitcoin trade and the eagerness these traders have to see if the currency is strong enough for the current market.
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