A surprise price correction to $860 on September 6 took bitcoin (BTC) from $19,820 to $18,960 in less than two hours. The move led to the liquidation of $74 million worth of Bitcoin futures on derivatives markets, the most in nearly three weeks. The current level of $18,733 is the lowest since July 13 and marks a 24% correction from the August 15 high of $25,000.
It is worth noting that there was a 2% pump towards $20,200 in the early hours of September 6, but the move was quickly muted and bitcoin resumed trading around $19,800 within the hour. Ether (ETH) price action was more interesting, gaining 7% in the 48 hours before the market correction.
Any conspiracy theory about investors changing positions in favor of the altcoin can be ruled out, as Ether fell 5.6% on September 6, while Bitcoin’s loss of $860 represents a change of 3.8%.
The market has been in turmoil since US stocks lost $1.25 trillion in a single day following comments on August 27 by US Federal Reserve Chairman Jerome Powell. At the annual economic symposium in Jackson Hole, Powell said even more interest rate hikes were on the cards, sending the S&P 500 down 3.4% that day.
We look at cryptocurrency derivatives data to understand whether investors are more likely to see the downturn at a higher price.
Professional traders are bearish since last week
Quarterly futures are generally avoided by retail traders because of their price difference from spot markets. However, they are preferred instruments by professional traders because they avoid the volatility in funding rates that often occurs in a perpetual futures contract.
In healthy markets, the indicator should trade with a 4-8% annual premium to cover the associated costs and risks. So it’s safe to say that derivatives traders have been neutral to bearish over the past month, as the bitcoin futures premium has remained below 3% throughout this period. This data 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, the 25% delta skew is a telltale sign when market makers and arbitrage desks are overpricing protection up or down.
In bear markets, investors prefer a more bearish price, causing the skewness indicator to rise above 12%. On the other hand, bullish markets tend to move the skewness indicator below negative 12%, which means bearish bulls are discounting.
The 30-day delta skew has crossed the 12% threshold since September 1, indicating that options traders are less willing to offer downside protection. Both of these derivative metrics suggest that bitcoin’s September 6 price drop may have been partially anticipated, which explains the small impact on liquidations.
In comparison, the fall of 2,500 bitcoins on August 18 resulted in the liquidation of $210 million in long leveraged positions (longs). However, prevailing bearish sentiment does not necessarily equate to negative price action. Caution should therefore be exercised when whales and market markers are less inclined to add leveraged lengths and provide downside protection through options.
The views and opinions expressed here are solely those of theauthor and those do not necessarily represent Cointelegraph. All investment and trading involves risk. You should do your own research before making a decision.