A descending triangle pattern has been pressuring Bitcoin (BTC) for the past three weeks and while some traders are citing this as a bullish reversal pattern, the $19,000 support remains a crucial level in determining the fate of the bulls.
Despite the apparent lack of a clear price bottom, Bitcoin derivatives metrics have improved significantly since June 30 and positive news from global asset manager VanEck may have eased trader sentiment.
On July 5, two retirement funds from the US state of Virginia announced a $35 million commitment to VanEck’s cryptocurrency-focused investment fund.
On the same day, a Huobi exchange subsidiary received its money services business (MSB) license from the United States Financial Crimes Enforcement Network (FinCEN). The Seychelles-based company stated that the license creates a foundation for the expansion of cryptocurrency-related businesses in the United States.
Positive news came on July 7 as decentralized finance staking and lending platform Celsius Network announced that it had fully repaid its outstanding debt to the Maker (MKR) protocol.
Celsius is among several crypto performance platforms on the brink of insolvency after historic losses across multiple positions. Forced sales of leveraged positions by exchanges and decentralized finance (DeFi) applications accelerated the recent cryptocurrency price crash.
Currently, traders are facing mixed sentiment between potential contagion impacts and their optimism that the $19,000 support is gaining strength. For this reason, analysis of derivatives data is essential to understanding whether investors are pricing in the increased odds of a market downturn.
Bitcoin Futures Premium Turns Slightly Positive
Quarterly futures are often avoided by retail traders due to their fixed settlement date and price difference to spot markets. However, the biggest advantage of these contracts is the absence of a fluctuating financing rate; hence the dominance of arbitration desks and professional traders.
These fixed month contracts tend to trade at a slight premium to spot markets as sellers ask for more money to hold the settlement longer. This situation is technically known as “contango” and is not unique to the cryptocurrency markets. Therefore, futures should trade at an annualized premium of 5% to 10% in healthy markets.
The annualized premium for Bitcoin futures turned negative on June 28, indicating low demand from buyers for leverage. However, the bearish structure did not hold for long as the indicator moved into the positive zone on July 4th.
Options Traders Remain Skeptical of Every Price Rise
To exclude the externalities inherent to the Bitcoin futures instrument, traders should also analyze the options markets. For example, the 25% slope of the options delta shows when arbitrage desks are charging more for upside or downside protection.
Options traders give higher odds for price to rise during bull markets, causing the delta indicator to fall below -12%. Meanwhile, the general feeling of fear in a market induces a positive bias of +12% or more.
June 18 saw the steepest delta slope, typical of extremely bearish markets. Still, the current +16% slope level shows investors’ reluctance to hedge against the downside, a fact reflected in put option overload.
Contagion remains a threat that adds pressure to the entire market
Whether $17,580 was the cycle low is hard to tell, but some traders attribute the move to Three Arrows Capital being unable to meet their margin calls.
Some traders are calling for a “generational bottom” but there is still a long way to go before investors turn bullish as Bitcoin remains locked in a descending triangle formation.
3AC got liquidated at the generational bottom, send everything into super cycle with haste
— hentaiavenger66 (@hentaiavenger66) July 6, 2022
For one thing, Bitcoin derivatives metrics show a modest improvement since June 30. On the other hand, investors remain wary of further contagion from such an important venture capital and crypto asset manager.
Sometimes the best trade is to wait for the market structure to clear up and avoid leverage at all costs, regardless of your certainty of a cycle bottom.
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