A moderate sense of hope emerged among Bitcoin (BTC) investors after the drop on June 18 to $17,600, with an early bullish trend signaling $21,000 in the short term.
Bitcoin price in US dollars over 12 hours at FTX. Source: TradingView
Recent negative comments from lawmakers continued to dampen investor optimism. In an interview with Cointelegraph, SNB Vice President Thomas Maser said that the decentralized finance (DeFi) ecosystem will come to a halt if current financial regulations in the crypto industry are implemented.
An article published in The People’s Daily on June 26 stated that Terra (LUNA), now renamed Terra Classic (LUNC), network collapse and local blockchain expert Yifan He refer to crypto as a Ponzi scheme. When Cointelegraph requested clarification of the statement on June 27, Yifan He stated that “all unregulated cryptocurrencies including Bitcoin are Ponzi schemes based on my understanding.”
On June 24, Sopnendu Mohanty, chief financial technology officer at the Monetary Authority of Singapore (MAS), vowed to be “relentlessly brutal and tough” about any “bad behavior” from the crypto industry.
Ultimately, Bitcoin investors are facing mixed sentiment as some believe the bottom is inside and $20,000 is support. Meanwhile, others fear the impact of the global recession on risky assets. For this reason, traders should analyze derivatives market data to understand whether traders are pricing in higher potential for deflation.
Bitcoin futures show a balanced force between buyers and sellers
Retail traders usually avoid monthly futures contracts because they are priced differently from the regular spot markets on Coinbase, Bitstamp and Kraken. However, these are the preferred tools for professional traders as they avoid the fluctuation of the funding rate for perpetual contracts.
Fixed month contracts usually trade at a slight premium to reveal the markets because investors are asking for more funds to block settlement. Thus, futures contracts should be traded at an annual premium of 5% to 10% in healthy markets. One should note that this feature is not exclusive to the cryptocurrency markets.
Annuity for 3-month Bitcoin futures contract. Source: Laevitas
When this indicator fades or turns negative, it is an alarming red bearish flag indicating a condition known as a pullback. The fact that the average premium barely touched negative territory while bitcoin traded to $17,600 is amazing.
Despite keeping the premium on futures contracts very low (the base price), the market has maintained a balance of demand between buyers and sellers.
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 whales and arbitrage desks overcharge to protect against the downside or upside.
During bear markets, options investors give higher odds of a price crash, causing the Skew Index to rise above 12%. On the other hand, generalized FOMO in the market leads to a negative deviation of 12%.
Bitcoin 30-day options 25% delta skew: Source: Laevitas
After peaking at 36% on June 18, an all-time high, the index has slipped back to the current 15%. The options markets show extreme risk aversion until June 25, when the delta deviation of 25% finally broke below 18%.
The current 25% divergence indicator continues to show a higher risk to the downside than professional traders, but is no longer present at levels that reflect extreme risk aversion.