A faint sense of hope arose among Bitcoin (BTC) investors after the June 18 crash to $17,600 was pushed back and an early ascending pattern pointed towards $21,000 in the near term.
Recent negative comments from lawmakers continue to dampen investor optimism. In an interview with Cointelegraph, the deputy head of the Swiss National Bank (SNB), Thomas Muser, said that the decentralized finance (DeFi) ecosystem would cease to exist if the current financial regulations in the cryptocurrency industry are applied.
An article published in “The People’s Daily” on June 26 mentioned the collapse of the Terra network and local blockchain expert Yifan He referred to crypto as a Ponzi scheme. Asked by Cointelegraph to explain the statement on June 27, Yifan He stated that “all unregulated cryptocurrencies, including Bitcoin, are Ponzi schemes to my understanding.”
On June 24, Sopnendu Mohanty, Head of FinTech at the Monetary Authority of Singapore (MAS), vowed to be “brutally and ruthlessly strict” on any “bad behavior” from the cryptocurrency industry.
Ultimately, Bitcoin investors are facing mixed feelings, with some thinking the bottom has been reached and $20,000 is support. Meanwhile, others fear the impact a global recession could have on risk assets. For this reason, traders should study the data from the derivatives markets to understand if the professionals are pricing in the odds of a further decline.
Bitcoin futures show balance between buyers and sellers
Retail traders often avoid monthly futures because their price differs from regular spot markets like Coinbase, Bitstamp, and Kraken. Even so, they are the instruments preferred by professional traders, since they avoid the fluctuation of the financing rate of perpetual contracts.
These fixed-month contracts typically trade at a slight premium to spot markets because investors demand more money to delay settlement. Consequently, futures should trade at a 5-10% annualized premium in healthy markets. We must keep in mind that this feature is not exclusive to cryptocurrency markets.
Every time this indicator disappears or turns negative, it is an alarming bearish red flag signaling a situation known as backwardation. The fact that the mid-premium barely touched the negative zone while Bitcoin was trading at $17,600 is notable.
Despite currently maintaining an extremely low futures (basis) premium, the market has maintained balanced demand between leveraged buyers and sellers.
To exclude futures instrument-specific externalities, traders should also analyze the Bitcoin options markets. For example, the 25% delta slope shows when Bitcoin whales and arbitrage desks are overcharging for downside or upside protection.
During bear markets, option investors place higher odds on a price crash, causing the slope indicator to rise above +12%. On the other hand, widespread FOMO of a market induces a -12% tilt.
After reaching a maximum of 36% on June 18, the highest record in history, the indicator fell back to the current 15%. Options markets had been extremely risk averse until June 25, when the 25% delta slope finally broke below 18%.
The current 25% slope indicator continues to show higher downside risks from professional traders, but is no longer at levels reflecting extreme risk aversion.
The price could have already bottomed according to on-chain data
Some metrics suggest that Bitcoin may have bottomed out on June 18 after miners sold off significant amounts of BTC. According to Cointelegraph, this indicates that capitulation has already occurred and Glassnode, an on-chain analytics firm, showed that Bitcoin’s Mayer Multiple fell below 0.5, which is extremely rare and hasn’t happened since 2015.
Whales and arbitrage desks could take some time to adjust after key players like Three Arrows Capital face serious contraction and liquidation risks due to illiquidity or excessive leverage. Until there is sufficient evidence that the risk of contagion subsides, the price of Bitcoin is likely to continue trading below $22,000.
The views and opinions expressed herein are solely those of the Author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.