Bitcoin price bounces to $ 41,500, but derivatives data shows lack of confidence from traders

Bitcoin price bounces to $ 41,500, but derivatives data shows lack of confidence from traders

Bitcoin (BTC) briefly hit its lowest level in five months this Monday at $ 39,650, marking a 42.6% decline from the current all-time high on November 22, 2022. Some argue that a “crypto winter” has already started citing the $ 2.1 billion in long-leveraged cryptocurrency futures contracts that were settled in the past seven days.

Bitcoin / USD price in FTX. Source: TradingView

The descending channel guiding Bitcoin’s negative performance over the past 63 days indicates that traders should expect prices below $ 40,000 by February.

Investor confidence continued to decline following the December FOMC session of the US Federal Reserve on January 5. The monetary policy authority showed its commitment to reduce its balance sheet and increase interest rates in 2022.

On January 5, Kazakhstan’s political turmoil added further pressure on the markets. The country was left without the internet amid the protests, causing the Bitcoin network’s hashrate to drop 13.4%.

Futures traders stay neutral

To analyze how bullish or bearish professional traders are, you have to keep an eye on the futures premium, which is also known as the “base rate.”

This indicator measures the difference between long-term futures contracts and current market levels. In healthy markets an annualized premium of between 5% and 15% is expected, a situation known as contango.

This price difference is due to sellers demanding more money to hold liquidation longer and a red alert pops up whenever this indicator fades or turns negative, which is a scenario known as “backwardation”.

Bitcoin price bounces to $ 41,500, but derivatives data shows lack of confidence from traders
Base rate of 3-month Bitcoin futures contracts. Source: Laevitas.ch

Notice how the futures market premium hasn’t traded below 7% in the last two months. This is an excellent indicator considering the lack of force in the price of Bitcoin during this period.

Read:  Valkyrie's Bitcoin Futures ETF to Launch on Nasdaq on Oct. 22

Options traders aren’t that bullish

To exclude the specific externalities of the futures instrument, one must also analyze the options markets.

The 25% slope of the delta compares similar call and put options. This metric will be positive when fear prevails, since the protection premium for put options is higher than that for call options of similar risk.

The opposite occurs when greed is the predominant mood, causing the 25% delta steepness indicator to shift into the negative zone.

Bitcoin price bounces to $ 41,500, but derivatives data shows lack of confidence from traders
Deribit Bitcoin Options Delta 25% Incline. Source: laevitas.ch

Readings between -8% and + 8% are generally considered neutral. The last time the 25% delta tilt indicator entered the range of “fear” at 10% was on December 6, 2022.

Therefore, options market traders are bordering on neutral to bearish sentiment, as the indicator is currently at + 8%. Additionally, buying hedging put options is getting more and more expensive, which is why market traders and arbitrage desks are not confident that $ 39,650 is the minimum.

Overall, sentiment is pessimistic and the $ 2.1 billion in aggregate futures contract settlements signal that longs from derivatives traders (buyers) are rapidly losing confidence. Only time will tell where the exact bottom is, but there is currently no indication of strong support from professional traders.

The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph.com. Every investment and business move involves risk, you should do your own research when making a decision.