Bitcoin (BTC) remains below $40,000 for the third straight day and the most likely source of volatility is the deteriorating state of traditional markets. For example, the S&P 500 is down 5% since April 20th. WTI crude oil prices fell 9.5% in seven days, erasing all gains accumulated since March 1st.
Meanwhile, China is struggling to contain its worst outbreak of Covid-19, despite strict lockdown measures in Shanghai, and according to Timothy Moe, Chief Asia-Pacific Equity Strategist at Goldman Sachs, “It’s no surprise and it makes all sorts of logic Reasons The market should be worried about the Covid situation as it is clearly affecting economic activity.
Investors were driven away from risky assets
As the global macroeconomic scenario deteriorated, investors took profits on riskier assets, leading the US Dollar Index (DXY) to hit a 25-month high of 101.8.
The cryptocurrency mining business also faced regulatory uncertainties after United States House of Representatives Jared Huffman and 22 other lawmakers banned the Environmental Protection Agency on March 21.
Despite the 4-day price correction of 10% to $38,200 on April 25, most holders are choosing to stay away from it, Glassnode on-chain data confirms. The percentage of supply that has been dormant for at least 12 months is now at an all-time high at 64%. As such, it’s worth examining whether the recent price rejection has impacted sentiment among derivatives traders.
Derivatives markets show bearish bitcoin traders
To understand if the market has turned bearish, traders need to look at the premium (basis) of bitcoin futures. Unlike a perpetual contract, these fixed calendar futures contracts do not have a funding rate, so their price will differ significantly from regular spot exchanges.
A trader can gauge the market’s uptrend by measuring the cost gap between futures and the regular spot market.
Bitcoin 3 month futures base rate. Source: Laevitas.ch
Futures should trade at an annualized premium of 5% to 12% in healthy markets. However, as illustrated above, Bitcoin’s basis moved below such a threshold on April 6 and currently stands at 2%. This means that futures markets have been pricing in bearish momentum for the past few weeks.
To rule out externalities specific to the futures instrument, traders should also analyze the options markets. For example, the 25% delta skew compares similar call (buy) and put (sell) options.
This metric turns positive when fear reigns supreme, as the protective premium of put options is higher than that of similar-risk call options. Meanwhile, when greed emerges, the opposite is true, causing the 25% Delta Skew indicator to turn negative.
Bitcoin 30-day options 25% delta skew. Source: Laevitas.ch
If options investors feared a price crash, the skew indicator would hover above 8%. On the other hand, general excitement reflects a negative 8% skewness. The metric turned down on April 7 and has since held above the threshold.
Related: Bitcoin sets lowest weekly close since early March as 4th red candle emerges
Traders will resist eventual price pumps
According to derivatives indicators, it’s safe to say that bitcoin pro traders felt less comfortable as bitcoin tested the $39,000 support.
Of course, none of the data can predict whether Bitcoin will continue its downtrend, but considering the current data, traders are asking too much money for downside protection. Consequently, any surprise price recovery will be questioned.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.
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