The former support level of $19,000 Bitcoin (BTC) is becoming more distant after a 22.5% gain in nine days. However, a little optimism has been instilled as the impact of the three equity crises (3AC), Voyager, Babel Finance and Celsius remains uncertain. Moreover, the infection claimed another victim after Thai crypto exchange Zipmex suspended withdrawals on July 20.
Bitcoin / USD one day rate. Source: TradingView
Bulls are hoping for the $23,000 support to strengthen over time, but derivatives metrics show that professional traders remain deeply skeptical of a sustained recovery.
Macroeconomic headwinds favor scarce assets
Some analysts attribute the strength of the cryptocurrency market to lower-than-expected GDP data from China, which has made investors anticipate more expansionary measures from policy makers. China’s economy grew 0.4% in the second quarter from a year earlier, as the country continued to struggle with self-imposed restrictions to curb another outbreak of COVID-19 infection, according to CNBC.
UK inflation of 9.4% in June hit a 40-year high, and in order to supposedly help the population, Chancellor of the Exchequer Nadim Zahawi announced a $44.5bn (£37bn) aid package for vulnerable families.
Under these circumstances, Bitcoin reversed its downward trend as policy makers scrambled to solve the seemingly impossible problem of slowing economies amid ever-increasing government debt.
However, the cryptocurrency sector faces its own problems, including regulatory uncertainty. For example, on July 21, the U.S. Securities and Exchange Commission (SEC) designated nine tokens as “crypto-asset securities,” thus not only falling within the jurisdiction of the regulator but also responsible for the failure to register with them. .
Explicitly, the SEC referred to Powerledger (POWR), Kromatika (KROM), DFX Finance (DFX), Amp (AMP), Rally (RLY), Rari Governance Token (RGT), DerivaDAO (DDX), LCX and XYO. The regulator has brought charges against a former Coinbase product manager for “insider trading” after he allegedly used non-public information for personal benefit.
Currently, Bitcoin investors are facing a lot of uncertainty despite the seemingly beneficial macro-economic background, which should favor scarce assets like BTC. For this reason, analyzing derivatives data is valuable in understanding whether investors are seeking higher odds of a pullback.
Professional traders remain skeptical about price recovery
Retail traders usually avoid quarterly futures contracts because their prices differ from the spot markets. However, they are preferred tools for professional traders as they prevent permanent fluctuation in contract financing rates.
Fixed month contracts usually trade at a slight premium to reveal the markets because investors are asking for more funds to block settlement. But this situation is not limited to the cryptocurrency markets, so futures contracts should be traded at an annual premium of 4% to 10% in healthy markets.
Annuity for 3-month Bitcoin futures contract. Source: Laevitas
The premium for Bitcoin futures scrambled into negative territory in mid-June, and something is usually seen during heavy downturns. The base rate of just 1%, or the annual premium, reflects the unwillingness of professional traders to create long (bull) positions of leverage. Investors remain skeptical about a price recovery despite the low cost of opening a bullish position.
One should also analyze the Bitcoin options markets to rule out the externalities of the futures instrument. For example, a delta skew of 25% is a milestone when market makers and arbitrage desks raise their fees to protect against an upside or downside trend.
In bear markets, options investors give higher odds of price sinking, causing the skew indicator to rise above 12%, while the opposite applies during bull markets.
Bitcoin 30-day options 25% delta skew: Source: Laevitas
The 30-day delta divergence peaked at 21% on July 14 as Bitcoin struggled to break the $20,000 resistance. The higher the index, the less inclined option traders have to offer protection from the downside.
Recently, the index moved below the 12% threshold, entered neutral territory, and is no longer sitting at levels that reflect extreme aversion. Thus, the options market is currently displaying a balanced risk assessment between the upside and a retest of the $20,000 area.