It has been 111 days since Bitcoin (BTC) posted a close above $25,000 and this led some investors to feel less confident that the asset had found a confirmed bottom. For the time being, global financial markets remain unsettled by heightened tensions in Ukraine following this week’s Nord Stream gas pipeline incident.
The Bank of England’s emergency intervention in government bond markets on September 28 also shed some light on the extreme fragility of fund managers and financial institutions at the moment. The move marked a radical change from the previous intention to tighten economies due to rising inflationary pressures.
Currently, the S&P 500 is on track for a third consecutive negative quarter, the first since 2009. In addition, Bank of America analysts downgraded Apple to neutral, due to the tech giant’s decision to cut production of iPhones due to the “low consumer demand”. Lastly, according to Fortune, the housing market has shown its first signs of reversal after house prices declined in 77% of US metropolitan areas.
Let’s take a look at Bitcoin derivatives data to understand if the worsening global economy is having any impact on crypto investors.
Professional traders were unenthusiastic about the rally to $20,000
Quarterly futures are often avoided by retail traders due to their price difference from spot markets, but they are favored by professional traders because they avoid the fluctuating funding rates that often occur in a perpetual futures contract.
The indicator should trade at an annualized premium of between 4% and 8% in healthy markets to cover the associated costs and risks. The chart above shows that derivatives traders have been neutral to bearish over the past 30 days, while the Bitcoin futures premium has remained below 2% the entire time.
More importantly, the metric did not improve after BTC rose 21% between September 7 and 13, similar to the failed $20,000 stress test on September 27. The data basically reflects the unwillingness of professional traders to add leveraged long positions (bullish).
Bitcoin options markets also need to be analyzed to exclude externalities specific to the futures instrument. For example, the 25% slope of the options delta is a telltale sign when market makers and arbitrage desks are charging more for upside or downside protection.
In bear markets, option investors place higher odds on a price decline, causing the slope indicator to rise above +12%. On the other hand, bull markets tend to push the bias indicator below -12%, meaning bearish put options are priced in.
The 30-day delta slope has been above the +12% threshold since Sept. 21 and its a sign that option traders were less inclined to offer downside protection. For comparison, between September 10 and 13, the associated risk was somewhat balanced across call and put options, indicating a neutral sentiment.
Low number of futures settlements confirms lack of surprise from traders
Futures and options metrics suggest that the drop in the price of Bitcoin on September 27 was more than expected. This explains the scant impact on settlements. Despite the 9.2% correction, from $20,300 to $18,500, barely $22 million worth of futures contracts were settled. A similar price crash on September 19 triggered a total of $97 million in liquidations of leveraged futures.
On the one hand, there is a positive attitude, as the long bear market of 111 days has not been enough to instill the negative trend in Bitcoin investors, according to derivatives metrics. However, the bears remain in gunpowder, considering that the futures premium is close to zero. Had traders been confident in a price decline, the indicator would have been in backwardation.
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