Bitcoin (BTC) chart to date is very bearish and the sub $18,000 level seen over the weekend was the lowest seen since December 2020. Current bulls hope relies on turning $20,000 into support, but derivatives metrics tell us quite a different story as it is still Professional traders are very skeptical.
BTC-USD 12-hour price on Kraken. Source: TradingView
It’s important to remember that the S&P 500 plunged 11% in June, and even multi-billion dollar companies like Netflix, PayPal and Caesars Entertainment corrected losses of 71%, 61% and 57%, respectively.
The US Federal Open Market Committee raised the benchmark interest rate by 75 basis points on June 15, and Federal Reserve Chairman Jerome Powell hinted that more violent tightening may be in store as the monetary authority continues its struggle to rein in inflation. However, investors and analysts fear that the move will increase the risks of a recession. According to Bank of America’s note to customers issued on June 17:
“Our worst fears about the Fed have been confirmed: They’ve fallen far behind the curve and are now playing a dangerous game of catch-up.”
Moreover, according to analysts at global investment bank JPMorgan Chase, the total market share of record-setting stablecoins within cryptocurrencies “indicates oversold conditions and a significant rally in the cryptocurrency markets from here.” According to analysts, the low percentage of stablecoins in the total cryptocurrency market cap is associated with limited crypto potential.
Currently, crypto investors are facing mixed sentiment between recession fears and optimism that the $20,000 support will gain strength, as the stablecoin could eventually trickle into Bitcoin and other cryptocurrencies. For this reason, analysis of derivatives data is useful in understanding whether investors are seeking higher odds of a drawdown.
Bitcoin futures premium turns negative for the first time in a year
Quarterly futures contracts are usually avoided by retail traders due to the price difference from the spot markets, but they are preferred tools for professional traders because they avoid the constant fluctuation of the contract financing rate.
Fixed month contracts usually trade at a slight premium to reveal the markets because investors are asking for more funds to block settlement. This situation is not limited to the cryptocurrency markets. Thus, futures contracts should be traded at an annual premium of 5% to 12% in healthy markets.
Annuity for 3-month Bitcoin futures contract. Source: Laevitas
Bitcoin futures premium failed to break the neutral 5% threshold, while Bitcoin price solidly maintained the $29,000 support as of June 11. When this indicator fades or turns negative, this is a bearish red alarm sign indicating that the situation is known as a default.
To rule out the externalities of a futures instrument, traders should also analyze the Bitcoin options markets. For example, delta deviation of 25% appears when bitcoin market makers and arbitrage desks raise their fees to protect against an upside or downside trend.
In bull markets, options investors give higher odds of a price pump, causing the skew indicator to drop below -12%. On the other hand, generalized market panic results in a positive skew of 12% or higher.
Bitcoin 30-day options 25% delta skew: Source: Laevitas
The 30-day delta skew peaked at 36% on June 18, an all-time high and typical of extremely bearish markets. Apparently, the 18% increase in bitcoin’s price since its low at $17,580 was enough to re-establish some confidence in derivatives traders. While the 25% deviation is still unfavorable for pricing downside risk, at least it is no longer present at levels that reflect extreme aversion.
Analysts expect “maximum damage” in the future
Some metrics suggest that Bitcoin may have bottomed out on June 18, especially as the $20,000 support has gained traction. On the other hand, market analyst Mike Alfred explained that, in his opinion, “Bitcoin has not finished liquidating the big players. They are going to bring it down to a level that will cause maximum damage to the most exposed players like a percentage point.”
Until traders have a better view of the contagion risks from the Terra ecosystem crash, the possible bankruptcy of Celsius and the liquidity issues Three Arrows Capital faces, the odds of another Bitcoin price crash are high.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your research when making a decision.