Bitcoin clings to $20,000 to surprise traders

Bitcoin clings to $20,000 to surprise traders

It’s been 111 days since bitcoin (BTC) posted a close above $25,000, leaving some investors unsure that the asset’s low has already been confirmed. For now, global financial markets are uneasy about increased tensions in Ukraine following this week’s Nord Stream gas pipeline incident.

The Bank of England’s emergency intervention in government bond markets on 28 September also highlighted the extreme vulnerability of fund managers and financial institutions today. The move from the previous intention to tighten economies as inflationary pressures increased was a major change.

Currently, the S&P 500 is on course for the third consecutive negative quarter, the first since 2009. In addition, analysts at Bank of America have downgraded Apple to neutral, due to the decision of the technology giant to reduce production. iPhone due to “weaker consumer demand “. Finally, according to Fortune, the real estate market showed its first signs of reversal after housing prices fell in 77% of urban areas in the United States.

We look at bitcoin derivatives data to understand if the global economic downturn is affecting cryptocurrency investors.

Pro traders were not happy with the rally to $20,000

Quarterly futures are generally avoided by retail traders because of their price difference from spot markets, but are preferred instruments by professional traders because they avoid the volatility in funding rates that often occurs in a fixed-term contract.

3-month annual bitcoin futures premium. Source: Laevitas

The annual premium for three-month futures, as shown in the chart above, should trade between +4% and +8% in healthy markets to cover the associated costs and risks. The chart above shows that derivatives traders have been neutral to bearish over the past 30 days, and the bitcoin futures premium has remained below 2% for the entire period.

More importantly, the metric did not improve after BTC rallied 21% between September 7 and September 13, similar to the $20,000 resistance test it failed on September 27. This data basically shows the reluctance of professional traders to add long leveraged (bullish) positions.

It is also necessary to analyze the bitcoin options markets to exclude the externalities specific to the futures instrument. For example, a 25% delta skew is a telltale sign when market makers and arbitrage tables are overpricing upside or downside protection.

In bear markets, option investors give a greater chance of a price drop, causing the skewness indicator to rise above 12%. On the other hand, bullish markets tend to push the skew indicator below 12%, which means bearish bulls are discounted.

Delta asymmetry of 25% of 30-day bitcoin options: Source: Laevitas

The 30-day delta skew has been above the 12% threshold since September 21, indicating that options traders are less inclined to offer downside protection. In comparison, between September 10 and September 13, the relative risk was somewhat equal, based on call (buy) and put (sell) options, indicating a neutral sentiment.

The low number of futures contract liquidations confirms that traders are not surprised

Futures and options indicators suggest that the fall in bitcoin price on September 27 was fairly expected regardless. This explains their low impact on liquidations. Despite the 9.2% correction from $20,300 to $18,500, only $22 million of futures contracts were liquidated. A similar price crash on September 19 resulted in a total of $97 million in leveraged futures liquidations.

On the one hand, there was a positive outlook because the 111-day bear market was not enough to scare the downside among bitcoin investors, according to derivative metrics. However, the bears continue to dominate the market, as the futures premium is close to zero. If traders were confident in a price reduction, the indicator would have gone backwards.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of All investment and trading involves risk. You should do your own research before making a decision.

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