- The price surge from 70k to 100k appears to have been fueled by ‘smaller investors’
- Last week recorded a significant decline in open interest for bitcoin futures
- A correction seems likely, thus there is a tendency to sell into rallies
- However, market positioning indicates larger investors are poised to take advantage of any pullback
- The bull flag target of $124.8k remains intact, post-correction
Previously, I discussed how traders might feel inclined to take profits as bitcoin approached the $100k milestone. Although there wasn't a visible rush to exit, the price action following its initial rise to $100k has shown a familiar scenario: bitcoin climbs, only to swiftly reverse, catching latecomers off guard.
This recurring theme emerges each time bitcoin nears a significant level. I now believe we are on the brink of a correction before another surge towards my target of $124.8k for the bull flag.
Open interest declines amidst rising prices
Open interest serves as an indicator of trading activity in the futures market. Over the past three years, open interest (OI) has been on an upward trend, peaking when bitcoin futures first hit $100k. There was also a notable rise in OI during the week of reaching that milestone.
Since then, however, open interest has steadily decreased while prices have continued to rise marginally. Notably, last week recorded the largest drop in open interest on record. Does this suggest we've hit a peak? Not necessarily.
Institutions remain patient, seeking a better entry point
Despite a sharp drop in open interest last week, the trading volume among institutional asset managers has remained relatively stable. They only slightly reduced their exposure by closing 131 bitcoin futures contracts. Up until September, asset managers were a driving force behind the bitcoin rally, but there was a noticeable decrease in long positions that month, without a corresponding increase in short positions. Since then, net-long positions among wealthy investors have increased alongside bitcoin prices, albeit at a more measured pace.
This indicates that smaller traders largely drove the rally from 70k to 100k, while larger investors may be strategically waiting to capitalize on a dip. As we see prices inch higher alongside a drop in open interest, I anticipate the market is positioned for a pullback before another advance towards 125k.
Technical Analysis of Bitcoin Futures (BTC1!)
The breakout from the flag pattern was straightforward, establishing a breakaway gap that typically shouldn't be filled quickly. Consequently, any pullback is expected to hold above 81,610.
Price movements have been inconsistent on the daily charts, marked by declining trading volumes which may suggest waning bullish momentum. Additionally, a bearish divergence has been observed on the weekly RSI (2) within the overbought territory, currently positioned below 50, signaling a likely near-term correction.
Bullish traders may look to sell during rally attempts towards the recent high, with expectations of a decline to at least 90k, near the monthly pivot (89,245). The support level at 87,945 could also be critical; breaking below that would bring the 84k mark into view.
However, given my belief that institutions are waiting for such a correction, and my intuition that the gap support will persist, I will monitor for signs of a swing low in anticipation of the next rise towards 125k.
