Bitcoin’s derivatives metrics reflect slight improvements since the $17,600 low, but whales and market makers continue to price higher risk of another breakdown.
A mild sense of hope emerged among Bitcoin (BTC) investors after the June 18 drop to $17,600 becomes more distant and an early ascending pattern points toward $21,000 in the short-term.
Bitcoin 12-hour USD price at FTX. Source: TradingView
Recent negative remarks from lawmakers continued to curb investor optimism. In an interview with Cointelegraph, Swiss National Bank (SNB) deputy head Thomas Muser said that the decentralized finance (DeFi) ecosystem would cease to exist if current financial regulations are implemented in the crypto industry.
An article published in The People’s Daily on June 26 mentioned the Terra (LUNA), now renamed Terra Classic (LUNC), network’s collapse and local blockchain expert Yifan He referred to crypto as a Ponzi scheme. When asked by Cointelegraph to clarify the statement on June 27, Yifan He stated that “all unregulated cryptocurrencies including Bitcoin are Ponzi schemes based on my understanding.”
On June 24, Sopnendu Mohanty the chief finech officer of the Monetary Authority of Singapore (MAS) pledged to be “brutal and unrelentingly hard” on any “bad behavior” from the cryptocurrency industry.
Ultimately, Bitcoin investors face mixed sentiment as some think the bottom is in and $20,000 is support. Meanwhile, others fear the impact that a global recession could have on risk assets. For this reason, traders should analyze derivatives markets data to understand if traders are pricing higher odds of a downturn.
Bitcoin futures show a balanced force between buyers and sellers
Retail traders usually avoid monthly futures because their price differs from regular spot markets at Coinbase, Bitstamp and Kraken. Still, those are professional traders’ preferred instruments as they avoid the funding rate fluctuation of the perpetual contracts.
These fixed-month contracts usually trade at a slight premium to spot markets because investors demand more money to withhold the settlement. Consequently, futures should trade at a 5% to 10% annualized premium in healthy markets. One should note that this feature is not exclusive to crypto markets.
Bitcoin 3-month futures’ annualized premium. Source: Laevitas
Whenever this indicator fades or turns negative, this is an alarming, bearish red flag signaling a situation known as backwardation. The fact that the average premium barely touched the negative area while Bitcoin traded down to $17,600 is remarkable.
Despite currently holding an extremely low futures premium (basis rate), the market has kept a balanced demand between leverage buyers and sellers.
To exclude externalities specific to the futures instrument, traders must also analyze the Bitcoin options markets. For instance, the 25% delta skew shows when Bitcoin whales and arbitrage desks are overcharging for downside or upside protection.
During bearish markets, options investors give higher odds for a price crash, causing the skew indicator to rise above 12%. On the other hand, a market’s generalized FOMO induces a negative 12% skew.
Bitcoin 30-day options 25% delta skew: Source: Laevitas
After peaking at 36% on June 18, the highest-ever record, the indicator receded to the current 15%. Options markets had shown extreme risk-aversion until June 25, when the 25% delta skew finally broke below 18%.
The current 25% skew indicator continues to display higher risks of a downside from professional traders but it no longer sits at the levels reflecting extreme risk aversion.
The bottom could be in according to on-chain data
Some metrics suggest that Bitcoin may have bottomed on June 18 after miners sold significant quantities of BTC. According to Cointelegraph, this indicates that capitulation has already occurred and Glassnode, an on-chain analysis firm, demonstrated that the Bitcoin Mayer Multiple fell below 0.5, which is extremely rare and hasn’t happened since 2015.
Whales and arbitrage desks might take some time to adjust after key players like Three Arrows Capital face serious contraction and liquidation risks due to lack of liquidity or excessive leverage. Until there’s enough evidence that the contagion risk is alleviated, Bitcoin price probably continue to trade below $22,000.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.