Bitcoin (BTC) might have shown strength after successfully defending the $28,000 support amid unfounded rumors regarding Binance, but an interesting development to note is that BTC is becoming less correlated with traditional markets after the US Federal Reserve decided to provide emergency liquidity to banks.
This change in central bank attitude has caused a change in the trajectory of US Treasuries as traders sought refuge from mounting inflationary pressure. Bitcoin appears to be movement agnostic and its price has been hovering around $28,000 for the past week.
For its part, the yield on the 5-year bond fell to 3.50% on April 3, compared to 3.70% the previous week. The increased demand for debt instruments reduces the payment, which translates into a lower yield. The $152.6 billion in outstanding borrowing from the US Federal Reserve’s backstop lending program has been the driving factor.
The general public’s lack of confidence in banks has also caused a reconsideration of what the Federal Deposit Insurance Corporation (FDIC) is and how the Fed no longer controls the trajectory of inflation. The question of whether Bitcoin can serve as a reliable store of value during a crisis remains open, but the 70% gain so far this year certainly proves something.
Investors reduce their cash positions
According to Bank of America data, total assets of money market funds in the United States reached a record $5.1 trillion. These instruments invest in short-term debt securities such as US Treasury bonds, certificates of deposit, and commercial paper. In addition, fund manager and analyst Genevieve Roch-Decter, CFA, says investors have withdrawn $1 trillion from banks because money market funds offer much higher returns.
Good Morning Everyone! Since the recent high, total deposits at US banks are down to a record $1 trillion. Where did the money go? A lot went to money market funds which just hit a record high. Who wants to make 0.3% with a bank account when you can make 5% in a money market fund! pic.twitter.com/t3RTETIHIA
— Genevieve Roch-Decter, CFA (@GRDecter) April 3, 2023
Although Bitcoin investors view cryptocurrencies as a safe haven against inflation, a recession would reduce demand for goods and services, leading to deflation. Risk increased substantially following the release of March ISM Purchasing Managers’ Index data in the United States. At 46.3, the indicator reached its lowest level since May 2020, below analysts’ forecast of 47.5, indicating contraction.
According to Jim Bianco, a macroeconomic analyst at Bianco Research, it was the 16th time since 1948 that such a low had been reached, and in 75% of those cases a recession followed.
ISM is out today at 46.3, the lowest since May 2020, the month after the COVID recession ended,
ISM started surveying in 1948. As this chart shows, this is the 16th time the ISM has been 46.3 or lower.
12 (75%) of these instances, the economy was either in recession or about to… pic.twitter.com/5Pw5zfFOrs
— Jim Bianco biancoresearch.eth (@biancoresearch) April 3, 2023
Let’s examine the metrics of Bitcoin derivatives to determine the current position in the market of professional traders.
Bitcoin Derivatives Traders Didn’t Bow to FUD
Quarterly Bitcoin futures are popular with whales and arbitrage desks, which typically trade at a slight premium to spot markets, indicating sellers are asking for more money to delay settlement longer.
Consequently, futures contracts on healthy markets should trade at an annualized premium of between 5% and 10%, a situation known as contango, which is not unique to cryptocurrency markets.
Since March 30, the Bitcoin futures premium has been hovering near the neutral to bearish threshold, indicating that professional traders are unwilling to turn bullish despite BTC price holding near the $28,000.
The absence of demand for leveraged longs does not always imply a fall in price. Consequently, traders should research the Bitcoin options markets to learn how whales and market makers price the probability of future price movements.
The 25% deviation from the delta indicates when market makers and arbitrage desks overcharge for upside or downside protection. In bear markets, option traders increase their odds for price declines, causing the bias indicator to rise above 8%. Conversely, bull markets tend to push the bias indicator below -8%, indicating that bear puts are less in demand.
The 25% tilt ratio is currently at -5% because protective puts are trading slightly cheaper than neutral to bullish calls. This is a bullish indicator given the recent FUD generated after the CFTC sued Binance on March 27. The regulator alleges that Binance and CZ violated derivatives and regulatory compliance laws by offering trading to US clients without registering with exchange regulators.
So far, Bitcoin has held up well as the stock sector forced the Fed to back down from its credit tightening policy. However, as long as regulatory uncertainty surrounds the cryptocurrency majors, Bitcoin is unlikely to break above $30,000.
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