Key BTC trading numbers are on the verge of a “worst-case scenario” suggesting the current sell-off is far from over.
Bitcoin (BTC) briefly hit its lowest level in five months this Monday at $39,650, 42.6% off its all-time high set on November 22, 2021. Some claim that the “crypto winter” has already begun, citing $2.1 billion. long leveraged cryptocurrency futures contracts liquidated in the last seven days.
Bitcoin/USD price on FTX. Source: Trading View
The downward channel defining Bitcoin’s negative momentum over the past 63 days suggests that traders should expect prices below $40,000 by February.
Investor confidence continued to fall after the December 5 meeting of the US Federal Open Market Committee. The Monetary Policy Office has shown its determination to cut its balance sheet and raise interest rates in 2022.
On January 5, political unrest in Kazakhstan put additional pressure on the markets. The country’s internet was shut down amid protests, causing the hashrate of the Bitcoin network to drop by 13.4%.
Futures traders remain neutral
To analyze how bullish or bearish professional traders are, one should keep an eye on the futures premium, also known as the “base rate”.
The indicator measures the difference between long-term futures contracts and current market levels. In healthy markets, an annual premium of 5% to 15% is expected, a situation known as “contango”.
This price gap is caused by sellers asking for more money to delay settlement longer, and a red alert appears when this indicator declines or turns negative, a scenario known as “lag.”
Bitcoin base rate for 3-month futures contracts. Source: Laevitas.ch
Note that the futures market premium has not fallen below 7% over the past few months. This is an excellent indicator, considering that Bitcoin prices were not high during this period.
Option traders are not so optimistic
To rule out externalities specific to a futures instrument, you should also analyze the options markets.
A delta skew of 25% compares similar call (buy) and put (sell) options. This indicator becomes positive when fear prevails because the protective premium of put options is higher than that of calls with the same risk.
The reverse is true when the prevailing mood is greed, causing the 25% Delta Skew indicator to turn negative.
Deribit bitcoin options with a delta skew of 25%. Source: laevitas.ch
Readings between minus 8% and plus 8% are generally considered neutral. The last time the Delta Skew 25% indicator entered the “fear” zone at the 10% level was on December 6, 2022.
Related: Bitcoin falls below $40,000 for the first time in 3 months as fear will ‘accelerate’
As such, options market traders are on the extreme borders of neutral to bearish as the indicator is currently at 8%. In addition, protective put options are becoming more expensive to buy, so market markers and arbitrage bureaus are not convinced that $39,650 was the bottom.
Overall, sentiment is bearish, with the liquidation of $2.1 billion in futures contracts signaling that long positions (buyers) of derivatives traders are rapidly losing confidence. Only time will tell where the exact bottom is, but there are currently no signs of strong support from professional traders.
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 move involves risk. When making a decision, you should do your own research.
