Based on the bullish momentum of bitcoin (BTC) during the week of July 18-25, blockchain analytics company Glassnode stated that both the futures market and the spot market for bitcoin, made up a scenario of shortfall strangulation, which actually took place on Monday, July 26. On the other hand, a significant decrease in the daily volume of transactions would reflect a bearish situation, despite the increase in prices, says the report.
The short squeeze or short choke is the process of liquidating short positions when a sharp increase in price occurs. In turn, the sales of those who wish to exit their short positions to minimize losses, may further boost the price of the asset.
The week closed at USD 35,423, after reaching a low on Tuesday 20, from USD 29,479, as seen in the following graph. On Monday, the price boom reached a maximum of USD 38,677, which led to the liquidation of p short positions for more than 900 million dollars , as reported by CriptoNoticias.
The bitcoin futures market
The report, published this Monday, it highlights that in the bitcoin futures options market there was a stark contrast between call and put options. The former were located in a range around USD 25,000, while the put options varied between USD 40,000 and USD 90,000.
Glassnode points out that the range of option purchase offers, part of the level of the historical maximum of the previous cycle, while than the put options, they start from USD 40,000 to USD 90,000. The fact that the call and put options are outside the consolidation range – between USD 29,000 and USD 40,000 – suggests that volatility is expected in the market , says the report.
Regarding open interest in the bitcoin futures markets, the report highlights that this had remained with little variation in the last two months , in a range between USD 10 billion and USD 12 billion. However, last week there was an increase of USD 1.4 billion , amid the price boom.
To assess the directional bias of the futures markets, the funding rates of the perpetual bitcoin futures are used , says the report. These rates have remained negative since May, which shows a bias in the market towards short positions .
Volume of bitcoin transactions at low levels
In contrast to the volatility of the futures markets and spot (spot), the volume of bitcoin transactions has remained low, the study says. The 14-day median bitcoin transaction volume has dropped to $ 5 billion per day, according to the report .
This value represents a significant decline from the $ 16 billion a day in the days leading up to May’s crash sales, say the authors.
However, as seen in the previous graph, the volume has not fallen to the levels of the bearish period of the bitcoin cycle of 2017-2018. Not only did the volume fall from USD 8,000 million to USD 2,000 million at that time, but there was then a long capitulation phase that lasted from May 2018 to May 2019 . “It remains to be seen whether on-chain volumes begin to rebound in response to recent volatility in price action,” the report states. It is called capitulation to the sale of BTC by miners when their activity is not profitable.
Bitcoin could be undervalued
The NVT metric, which has been addressed by CriptoNoticias, is the ratio of the market capitalization of Bitcoin between the daily volume of transactions . This indicator has fallen to minimum values this year, despite the fact that daily volumes have decreased. “Historically, very low NVT values suggest that the network is undervalued. In contrast, very high values, such as those seen in February this year, indicate that the volume of transactions is relatively low and could not justify the market capitalization at that time, “says the report.
When prices moved close to USD 29,000 at the beginning of the week, the NVT suggested that the network might be oversold, compared to volume on-chain . This collapse in shorts has pushed the NVT higher. If the on-chain volumes do not go up, to support higher prices, that may suggest fundamental drivers are missing and would be a sign to be more cautious.
In general, network activity is low and could be considered bearish, say the authors. “Possibly, the use of the Bitcoin network lags behind prices in this case,” the study limits.
The renewal of volatility and constructive price action could demand a higher volume of transactions, the study raises. However, if this increase in the volume of transactions does not occur, it could be an indicator that a more cautious scenario is necessary in the following weeks, concludes the report.
In this week, which began With the price falling from $ 40,000 to $ 36,500, there was a recovery in the last two days. Although this Wednesday the level of USD 40,000 was exceeded on several occasions, the lateral movements around that value have been maintained. At the time of this writing, bitcoin is trading at $ 39,989, as can be seen in the CriptoNoticias price calculator.