Bitcoin’s current setup creates an interesting risk-reward situation for bulls

Bitcoin’s current setup creates an interesting risk-reward situation for bulls

The Bitcoin (BTC) chart has formed a symmetrical triangle, currently holding a tight range of $28,900 to $30,900. This pattern has held for almost two weeks and could extend for another two weeks before price makes a more decisive move.

12 candlestick chart of the BTC/USD (Kraken) pair. Source: TradingView

For those unfamiliar with technical analysis, a symmetrical triangle can be bullish or bearish. In that sense, the price converges in a series of lower highs and higher lows. The turning point is the breakout of support or resistance when the market finally decides on a new trend. Therefore, the price could break out in either direction.

According to Bitcoin derivatives data, investors are pricing in the increased odds of a downturn, but recent improvements in the global economic outlook could catch bears off guard.

The macroeconomic scenario has improved and BTC miners are still busy

According to Cointelegraph, US-driven macroeconomic conditions helped push crypto markets higher on May 23. Before the opening of the day, the president of the United States, Joe Biden, announced plans to reduce trade tariffs with China, which raised the morale of investors.

According to the latest estimates, the Bitcoin network difficulty will drop by 3.3% in its next automated reset this week. The change will be the largest downward adjustment since July 2021 and it is clear that Bitcoin’s downward trend has called into question the profitability of miners.

Still, miners show no signs of capitulation, even as movements from their wallets to exchanges hit a 30-day low on May 23, according to on-chain analytics platform Glassnode.

While miner sentiment and movements are important, traders should also follow whale position and metrics in the futures and options markets.

Bitcoin Derivatives Metrics Neutral to Bearish

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 type of financing; hence the prevalence of arbitration desks and professional traders.

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These fixed-month contracts typically trade at a slight premium to spot markets because sellers ask for more money to hold the settlement for 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 15% in healthy markets.

Bitcoin's current setup creates an interesting risk-reward situation for bulls
3-month Bitcoin futures annualized premium. Source: Laevites

Based on the data above, the Bitcoin Basis indicator has been down 4% since April 12. This reading is typical of bear markets, but the fact that it has not deteriorated after the drop to $25,400 on May 12 is encouraging.

To exclude futures instrument-specific externalities, traders also need to analyze the Bitcoin options markets. The 25% delta slope is extremely useful because it shows when Bitcoin arbitrage desks and market makers are overcharging for upside or downside protection.

If option investors fear a drop in Bitcoin price, the bias indicator will move above +12%. On the other hand, the widespread hype reflects a -12% tilt.

Bitcoin's current setup creates an interesting risk-reward situation for bulls
Bitcoin 30-day options delta 25% slope. Source: Laevites

The 25% slope indicator moved above 12% on May 9, entering “fear” levels as traders rushed to buy protection on the downside. Furthermore, the recent 25.4% was the worst reading ever recorded for the metric.

Be brave when most are afraid

In short, the BTC options markets remain choppy and this suggests that professional traders are not confident in taking risks to the downside. The Bitcoin futures premium has held up a bit, but the indicator shows a lack of interest from leveraged long buyers.

Taking a bullish bet might seem counterintuitive at the moment, but at the same time, an unexpected price rally would take professional traders by surprise. Therefore, it creates an interesting risk-reward situation for Bitcoin bulls.

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