Bitcoin price successfully defended the $28,000 support on May 2, but has yet to prove enough strength to recover the $29,200 level from April 30.
$30K is critical for Bitcoin bulls
Some analysts may attribute the recent drop to expectations that the United States Federal Reserve will raise interest rates on May 3, but in reality, the market is pricing in a 92% chance of a modest 25-basis-point hike to its peak. September 2007.
As market intelligence platform Decentrader pointed out, comments from Fed Chairman Jerome Powell are more likely to bring factors that point to further steps to slow the economy or indicate higher chances of terminal interest rates being closer to 5%. Powell will hold a press conference at 2:30 p.m. ET.
From an employment perspective, the central bank has reason to believe the market is overheating. The U.S. government reported 1.6 job openings for every unemployed worker in March. Also, according to the “ADP National Employment Report” released on May 3, private payrolls increased by 296,000 jobs in April, well above the market consensus of 148,000.
However, raising interest rates has particularly negative consequences for households and small businesses. Financing and mortgages become more expensive, while investing in fixed income becomes more attractive. Such an undesirable outcome of deflation could further shake the core of the financial system as the latest bank failure shows, this time that of First Republic Bank.
So, an ultimate bitcoin
A price advance above $30,000 could be a clear sign of a shift in investor perception from viewing Bitcoin as a risky asset to a scarce digital asset that directly benefits from a fragile traditional banking system.
But to gauge whether Bitcoin’s resistance above $28,000 is sustainable, an investor should analyze whether buyers have used excessive leverage and whether professional traders are using BTC derivatives to determine high chances of a market downturn.
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Bitcoin futures are showing low demand from leveraged buyers
Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a small premium, indicating that sellers are demanding more money for delaying settlement.
As a result, futures contracts in healthy markets must trade at an annual premium of 5 to 10% – a situation known as contango, which is not unique to crypto markets.
Bitcoin two-month futures annual premium. Source: Levitas
The data suggests that Bitcoin traders have become more cautious over the past two weeks. Even when the BTC price hit $30,000 on April 26, there were no signs of demand for leveraged longs.
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Additionally, the Bitcoin futures premium has stagnated near 2% since April 23, indicating that buyers are unwilling to use healthy leverage for the market. By eliminating futures contract exposure, it greatly reduces the risk of large liquidations during negative bitcoin price moves.
Bitcoin options traders remain neutral
The Bitcoin options market can also help a trader understand whether a recent correction has made investors more optimistic. A 25% delta skew is an indication when arbitrage desks and market makers are overcharging for upside or downside protection.
In short, if traders are anticipating a fall in Bitcoin prices, the skew metric will rise above 7%, with a negative 7% deviation during phases of excitement.
Bitcoin 60-Day Options 25% Delta Skew. Source: Levitas
Delta’s 25% option shows balanced demand between call and put options over the past four weeks. Surprisingly, the Bitcoin price increased by 10% between April 25th and April 30th, when the $30,000 resistance was last tested.
As a result, the Bitcoin options and futures markets indicate that professional traders are not placing their chips on BTC prices above $30,000 anytime soon. On the other hand, those whales are pricing in similar probabilities of surprising positive and negative moves.
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