Bitcoin derivatives show lack of confidence from bulls

Bitcoin derivatives show lack of confidence from bulls

Bitcoin (BTC) has been trending higher since mid-July, though $21,100 support is currently forming an ascending channel. This pattern has been going on for 45 days and could drive BTC towards $26,000 by the end of August.

Price 12 hours bitcoin / USD. Source: Trade View

Based on bitcoin derivatives data, investors are pricing in the risk of a slowdown, but recent improvements in the global economic outlook may surprise.

The correlation with traditional assets is the main source of investor confidence, especially when assessing risks of recession and tensions between the United States and China in the period before the visit of the Speaker of the House of Representatives, Nancy Pelosi, in Taiwan. According to CNBC, Chinese officials threatened to take action if Pelosi went ahead with her Taiwan travel plans.

Recent interest rate hikes by the US Federal Reserve aimed at curbing inflation have brought additional uncertainty to risky assets, curbing the rally in cryptocurrency prices. Investors are betting on a “soft landing,” meaning the central bank will be able to gradually revoke its stimulus activities without causing significant unemployment or recession.

The correlation metric goes from a negative 1, meaning the selected markets are moving in opposite directions, to a positive 1, indicating perfect, symmetrical movement. A difference or lack of relationship between the two assets would be represented by 0.

40-day correlation between the S&P 500 and the Bitcoin/USD pair. Source: Trade View

As mentioned above, the 40-day correlation between the S&P 500 and bitcoin is currently at 0.72, which has been the norm for four months.

On-Chain Analysis Supports Longer-Term Bear Market

Blockchain analytics firm Glassnode’s “The Week On Chain” report from August 1 showed weak Bitcoin transactions and demand for block space similar to the bear market of 2018-19. The analysis suggests that a trend derivation pattern would be needed to signal the arrival of new investors:

“Active addresses [moyenne mobile sur 14 jours] more than 950,000 would indicate that the chain has increased activity, which would suggest that there may be market strength and an increase in demand. »

While blockchain metrics and feeds are important, traders should also follow how whales and market markers are positioned in futures and options markets.

Bitcoin derivatives metrics show no sign of ‘fear’ from professional traders

Retail traders generally avoid monthly futures because of their fixed settlement date and price difference from spot markets. On the other hand, arbitrage offices and professional traders choose monthly contracts because of the lack of volatility in the funding rate.

These fixed-month contracts typically trade at a small premium to regular spot markets, as sellers demand more money to delay settlement longer. Technically known as “contango,” this situation is not exclusive to cryptocurrency markets.

3-month annual bitcoin futures premium. Source: Laevitas

In healthy markets, futures contracts should trade at an annual premium of 4-8%, which is enough to offset risk plus the cost of capital. However, according to the data above, the bitcoin futures premium has been below 4% since June 1st. This reading is not particularly worrying since BTC has lost 52% since the beginning of the year.

To rule out externalities specific to the futures instrument, traders should also analyze bitcoin options markets. For example, a 25% delta asymmetry signals whales and bitcoin market makers protecting an overprice up or down.

If options investors fear a Bitcoin price crash, the skewness indicator will rise above 12%. On the other hand, general excitement shows a negative skew of 12%.

delta skew of 25% of bitcoin options at 30 days: Source: Laevitas

The skew indicator is below 12% since July 17, which is considered a neutral zone. Therefore, options traders assess similar risks for bullish and bearish options. Even the retest of $20,750 support on July 26 was not enough to “fear” derivatives traders.

Bitcoin derivatives metrics remain neutral despite rallying towards $24,500 on July 30, suggesting that professional traders lack confidence in a sustainable trend. Therefore, the data shows that an unexpected move above $25,000 would surprise professional traders. It may seem like you’re making bullish bets right now, but at the same time it creates an interesting risk-reward situation.

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

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Bitcoin Price Hits $23,000 After Pelosi’s Taiwan Visit, Trading Range Lasts