A slight sense of hope has developed among Bitcoin (BTC) investors after the June 18 plunge to $17,600 keeps becoming more distant and an early ascending pattern now points toward $21,000 in the near term. Bitcoin’s derivatives metrics seem to reflect small improvements since the lows of previous weeks. However, whales and market makers keep pricing a higher risk of another breakdown.
Recent negative remarks from legislators continued to limit investor optimism. In a recent exclusive interview, Swiss National Bank (SNB) deputy head Thomas Muser insisted that the decentralized finance (DeFi) industry would cease to exist in case the current financial regulations get implemented in the crypto sector.
A recent article published in “The People’s Daily” on June 26 highlighted the Terra network’s collapse and local blockchain expert, Yifan He referred to cryptocurrency as a Ponzi scheme. When asked to clarify the statement a day later, Yifan said:
“All unregulated cryptocurrencies including Bitcoin are Ponzi schemes based on my understanding.”
On June 24, Sopnendu Mohanty the chief FinTech officer of the Monetary Authority of Singapore (MAS) confirmed that he would be “brutal and unrelentingly hard” on any “bad behavior” from the crypto space.
Currently, Bitcoin investors seem to be facing mixed sentiment as some think that the bottom is in and $20,000 is support. In the meantime, others fear the effect that a global recession could have on risk assets. For that sole reason, traders are advised to analyze derivatives markets data to comprehend if the traders are pricing higher odds of a downturn.
Bitcoin Futures Show Buyers And Sellers Are Balanced
Retail traders normally avoid the monthly futures since their price mostly differs from the normal spot markets at Bitstamp, Coinbase, and Kraken. Still, these are professional traders’ preferred instruments because they avoid the funding rate fluctuation of perpetual contracts.
The fixed-month contracts normally trade at a small premium to spot markets since investors demand more money to withhold settlements. In that context, futures need to trade at a 5% to 10% annualized premium in healthy markets. One needs to note that the feature is not exclusive to the crypto markets.
Whenever the indicator fades or turns negative, it is an alarming, bearish red flag signaling a market situation known as backwardation. The simple fact that the average premium barely touched the negative zone while Bitcoin traded at $17,600 is quite remarkable.
Despite now holding an extremely low futures premium (basis rate), the market has managed to keep a balanced demand between leverage sellers and buyers. To exclude externalities specific to the futures market instrument, traders have to also analyze the Bitcoin options markets. For example, the 25% delta skew highlights whenever Bitcoin whales and the arbitrage desks are overcharging for upside or downside protection.
Amid bearish markets, options investors give some higher odds for a price crash, which causes the skew indicator to surge above 12%. On the flip side, a market’s generalized FOMO appears to induce a negative 12% skew.
After it peaked at 36% on June 18, the highest-ever record, the indicator then receded to the current 15%. In that context, the options markets had shown extreme risk-aversion until June 25, when the 25% delta skew eventually broke below 18%.
The current 25% skew indicator continues to display increased risks of a downward trend from professional traders but it longer sits at the levels that reflect extreme risk aversions.
Buy Bitcoin NowThe Bottom Might Be In Based On On-Chain Data
Some of the metrics now indicate that Bitcoin may have bottomed on June 18 after miners sold considerable quantities of their coins. Based on previous reports, it indicates that capitulation has already happened and Glassnode, an on-chain analysis company, highlighted that the Bitcoin Mayer Multiple dropped by 0.5, which is rare and has not happened since 2015.
Arbitrage desks and whales may take some time to adjust after key players like Three Arrows Capital face severe contraction and liquidation risks as a result of lack of liquidity or extensive leverage. Until there is adequate evidence that the contagion risk is eliminated, Bitcoin’s price might continue to trade below $22,000.
