The Bitcoin (BTC) month-to-date chart looks pretty bad, and the price of around $18,000 over the weekend was the lowest since December 2020. The goal of the bulls right now is to turn $20,000 into support, but derivatives measures tell a different story, and professional traders are still being careful.
It’s important to remember that the S&P 500 index fell 11% in June, and that even multibillion-dollar companies like Netflix, PayPal, and Caesars Entertainment have lost %71, 61%, and 57%, respectively, since then.
On June 15, the US Federal Open Market Committee raised the benchmark interest rate by 75 basis points, and Federal Reserve Chairman Jerome Powell hinted that more aggressive tightening might be coming as the monetary authority tries to keep inflation under control. On the other hand, investors and experts worry that this decision could make it more likely that the economy will go into a recession. In a letter to customers on June 17, Bank of America said,
“Our worst fears about the Fed have come true: they have fallen far behind and are now playing a dangerous game of catch-up.”
Also, analysts at JPMorgan Chase say that the record-high total market share of stablecoins in crypto “points to oversold conditions and a large upside for crypto markets from here on out.” Researchers say that the smaller share of stablecoins in the total crypto market capitalization is linked to a limited crypto potential.
Investors in cryptocurrencies are now split between worrying about a recession and being sure that the $20,000 support level will hold, since stablecoins may eventually pour into Bitcoin and other cryptocurrencies. So, looking at data on derivatives could help you figure out if you’re pricing in a higher chance of a slump.
The price of Bitcoin futures is going down for the first time in a year.
Due to the difference in price between quarterly futures and spot markets, retail traders tend to avoid them. Professional traders, on the other hand, like them because they don’t have to worry about contract financing rates changing all the time.
Because investors want more money to delay the settlement, these fixed-month contracts often trade at a little bit more than spot markets. This is not a problem that only happens in the cryptocurrency market. Because of this, futures should trade at a premium of 5% to 12% per year in healthy markets.
The Bitcoin futures premium didn’t go over the neutral level of 5%, and the price of Bitcoin stayed the same at $29,000 until June 11. This is a scary, bearish red flag. If this indicator goes down or goes negative, it means that backwardation is happening.
Traders must also look at the Bitcoin options markets to avoid problems that are unique to the futures instrument. For example, the 25 percent delta skew shows when Bitcoin market makers and arbitrage desks charge too much for protection on the upside or the downside.
When markets are going up, investors in options make it more likely that prices will go up, which brings the skew indicator below -12 percent. On the other hand, a market with widespread fear has a positive skew of at least 12%.
On June 18, the 30-day delta skew hit a new high of 36 percent, which was a new record and showed that bearishness was very strong. Futures traders seem to have regained faith in Bitcoin after its price went up 18 percent from its low of $17,580. Even though the 25 percent skew indicator is still bad for pricing downside risks, it is not as bad as it used to be.
Analysts say that in the next few months, “maximum harm” is likely to happen.
Several signs show that Bitcoin’s price bottomed out on June 18, especially since the $20,000 support has gained traction. On the other hand, market expert Mike Alfred said, “Bitcoin isn’t done getting rid of important players,” and he was very clear about that. They’ll bring it down so that the most overexposed players, like Celsius, get hurt the most.
There is a good chance that the price of Bitcoin will drop again until traders have a better idea of how the Terra ecosystem implosion, Celsius’s possible bankruptcy, and Three Arrows Capital’s liquidity problems could spread.
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