The blockchain space is seeing some areas of strength despite the marked downturn in the market. Funding perpetual futures contracts for Bitcoin (BTC) and Ether (ETH) are back in positive territory on major exchanges, showing bullish sentiment among derivatives traders. In addition, Bitcoin has started to trade below the cost basis, which marked earlier areas of market bottoms. In contrast, June saw Decentralized Finance (DeFi) drop 33% in total closed value and crypto stocks provide -42.7% average monthly return.
There is a constant battle between bullish and bearish sentiment in different areas of the market. To help cryptocurrency traders maneuver into the battlefield, Cointelegraph Research recently launched its monthly “Investor Insights Report.” In the report, the research team breaks down the major market-moving events of the past month and the most important data across various industry segments. The researchers provide expert analysis and insights that can benefit serious participants in the blockchain market.
Derivatives may provide a leading indicator of sentiment change
In the run-up to June, there was a strong downtrend in the market. One of the indicators of a bearish and bullish trend is the volatility skew in the market. The larger the skew range, the more volatile it is, while tighter ranges indicate less volatility – which means more confidence in the market. On June 18, Bitcoin’s 25-delta options skew peaked at 36%, an all-time high. Since then, some optimism has returned, bringing the deviation down to 17%. This indicates a strong belief that the cryptocurrency market will recover over the next few months.
Long call premiums on Bitcoin and Ether indicate that traders are optimistic about the end of the year. However, solvency issues and the risk of contagion remain in the market and in the minds of investors and regulators.
In the sideways markets, traders can use the throttle to generate returns if bitcoin remains range bound. Strangles involve buying and selling at different strike prices. The idea of a strangle is similar to what the name implies: placing a put (a put option) and a call (a call option) below and above the current spot price. For example, if Bitcoin is worth $20,000, first sell a put at $15,000 on the downside and sell at $30,000 to the upside. If it expires after a month, the premiums lead to the winnings minus the transaction fee.
Download and purchase reports on the Cointelegraph Research Terminal.
Currently, options skew is steeply sloping, with an implied volatility differential of up to 10% between the $17,000-24,000 strike prices on Deribit and CME. This indicates a good risk reversal setup which includes a short call at $17,000 and a long call at $24,000.
Is bullish sentiment starting to push the bears back?
Bitcoin’s unrealized net loss has reached its lowest level in three years, highlighting that its current market value is approximately 17% below its total cost basis. Historically, global bottoms formed when losses exceeded 25%. The downward sloping moving averages and the oversold RSI indicate that the bears are in control.
However, for the first time since March 2020, bitcoin is trading below the mining cost basis, a level that has historically marked global troughs and troughs in the bitcoin price. The Unrealized Net Profit/Loss indicator is more evidence that the bulls may be outperforming the bears.
From derivatives to the NFT sector
The Investor Insights report covers many other topics such as security tokens, DeFi, blockchain gaming, cryptocurrency mining, blockchain-related stocks, regulation, and venture capital investments. Dedicated experts stay up-to-date with the latest news and trends to beat the weeds and provide essential insights into the blockchain industry.
Each section of the report covers important elements that affect the topic. Topic experts cover the most important events that will have the greatest impact, and the information is presented in an easily digestible format that serious crypto market participants can use to get an overview, highlights and forecast of what might be on the horizon. The newsletter is now available for subscription and features full charts and detailed analysis.
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Cointelegraph Research Team
Cointelegraph’s research department includes some of the best talent in the blockchain industry. By combining academic rigor and filtering through hard-earned hands-on experience, the researchers on the team are committed to bringing you the most accurate and insightful content available on the market.
Demelza Hayes, Ph.D., is director of research at Cointelegraph. Hays has assembled a team from the subject expe