With the bear market in full throttle, crypto derivatives retain their popularity

July 5, 2022 Coin Telegraph

BingX

"Derivatives provide opportunities to protect their portfolios during times of heightened market volatility," says Emerson Li, brand lead at BingX.

The 2022 cryptocurrency bear market has been the worst on record as most Bitcoin traders are underwater and continue to sell at a loss. In response to the rapid decline of token prices, some investors have fled to safe-haven assets; some have exited the market completely and others have perplexingly turned to the enigmatic market of crypto derivatives.

With regards to this, Cointelegraph spoke to BingX's brand lead Emerson Li. BingX is a Singaporean social-based cryptocurrency exchange known for its leaderboards where users can compete with others for returns on investments as well as share ideas among their followers. The exchange processed around $319 million in trading volume within the past 24 hours, mainly consisting of derivates. Regarding the recent market downturn, here's what Li had to say:

"BingX's users are also proliferating; compared with Q1 2022, Users number increased by 70% in the second quarter, and transaction volumes doubling since this round of slumps. We believe that its demand for derivatives is still increasing because it allows users to profit from falling prices, a feature that other products do not have."

During bear markets, traders can purchase derivatives known as put options to either hedge their positions or speculate that the value of underlying tokens will fall. While this can be done by simply shorting the coin, violent and periodic bear market rallies can lead to theoretically infinite losses on one's short position. In addition, a lack of liquidity for borrowing coins to short may lead to exchanges charging high-interest rates on one's positions. On the other hand, the put buyer's losses are theoretically limited to the premium they paid for the derivative, and there are no additional interest fees.

Li went on to explain that BingX is also seeing a sharp increase in deposits as of late. "Since high market volatility is suitable for the derivatives market, we see more users participating in such transactions and stimulating more demand for deposits."

Money also appears to be flowing back to CeFi products from DeFi protocols. "For high-risk products such as DeFi staking, we believe traders have panicked under the recent market, affected by the Terra (LUNA) — since renamed Terra Classic (LUNC) — affair and the problems with many DeFi protocols. Users' risk appetite has decreased, and demand has declined," said Li.

Indeed, dYdX, a decentralized crypto exchange known for its margin and perpetual contract products, saw its weekly trading volume fall approximately 90% from the $12.5 billion witnessed from Oct 24 to Oct 30 last year. However, the trading volume is still several magnitudes higher than one year ago, partly due to the aforementioned risk-hedging tailwind.

Risk-wise, it would appear that the worst is over as a spike in liquidations on dYdX, mainly in the Ethereum and Bitcoin markets, has dissipated since mid-June. Experts from Glassnode noted tokens held in wallet addresses by both new investors and crypto whales had been increasing meaningfully amid the sell-off.

Bitcoin’s short-term price prospects slightly improved, but most traders are far from optimistic

June 27, 2022 Coin Telegraph

China

Bitcoin’s derivatives metrics reflect slight improvements since the $17,600 low, but whales and market makers continue to price higher risk of another breakdown.

A mild sense of hope emerged among Bitcoin (BTC) investors after the June 18 drop to $17,600 becomes more distant and an early ascending pattern points toward $21,000 in the short-term.

*Bitcoin 12-hour USD price at FTX. Source: TradingView*

Recent negative remarks from lawmakers continued to curb investor optimism. In an interview with Cointelegraph, Swiss National Bank (SNB) deputy head Thomas Muser said that the decentralized finance (DeFi) ecosystem would cease to exist if current financial regulations are implemented in the crypto industry.

An article published in The People's Daily on June 26 mentioned the Terra (LUNA), now renamed Terra Classic (LUNC), network's collapse and local blockchain expert Yifan He referring to crypto as a Ponzi scheme. When asked by Cointelegraph to clarify 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 the chief fintech officer of the Monetary Authority of Singapore (MAS) pledged to be "brutal and unrelentingly hard" on any "bad behavior" from the cryptocurrency industry.

Ultimately, Bitcoin investors face mixed sentiment as some think the bottom is in and $20,000 is support. Meanwhile, others fear the impact that a global recession could have on risk assets. For this reason, traders should analyze derivatives markets data to understand if traders are pricing higher odds of a downturn.

Bitcoin futures show a balanced force between buyers and sellers

Retail traders usually avoid monthly futures because their price differs from regular spot markets at Coinbase, Bitstamp and Kraken. Still, those are professional traders' preferred instruments as they avoid the funding rate fluctuation of the perpetual contracts.

These fixed-month contracts usually trade at a slight premium to spot markets because investors demand more money to withhold the settlement. Consequently, futures should trade at a 5% to 10% annualized premium in healthy markets. One should note that this feature is not exclusive to crypto markets.

*Bitcoin 3-month futures’ annualized premium. Source: Laevitas*

Whenever this indicator fades or turns negative, this is an alarming, bearish red flag signaling a situation known as backwardation. The fact that the average premium barely touched the negative area while Bitcoin traded down to $17,600 is remarkable.

Despite currently holding an extremely low futures premium (basis rate), the market has kept a balanced demand between leverage buyers and sellers.

To exclude externalities specific to the futures instrument, traders must also analyze the Bitcoin options markets. For instance, the 25% delta skew shows when Bitcoin whales and arbitrage desks are overcharging for downside or upside protection.

During bearish markets, options investors give higher odds for a price crash, causing the skew indicator to rise above 12%. On the other hand, a market's generalized FOMO induces a negative 12% skew.

*Bitcoin 30-day options 25% delta skew: Source: Laevitas*

After peaking at 36% on June 18, the highest-ever record, the indicator receded to the current 15%. Options markets have shown an extreme risk-aversion until June 25, when the 25% delta skew finally broke below 18%.

The current 25% skew indicator continues to display higher risks of a downside from professional traders but it no longer sits at levels that reflecti extreme risk aversion.

The bottom could be in according to on-chain data

Some metrics suggest that Bitcoin may have bottomed on June 18 after miners sold significant quantities of BTC. According to Cointelegraph, this indicates that capitulation has occurred already and Glassnode, an on-chain analysis firm, demonstrated that the Bitcoin Mayer Multiple fell below 0.5, which is extremely rare and hasn't happened since 2015.

Whales and arbitrage desks might take some time to adjust after key players like Three Arrows Capital face serious contraction and liquidation risks due to a lack of liquidity or excessive leverage. Until there's enough evidence that the contagion risk is alleviated, Bitcoin price probably continue to trade below $22,000.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Leading US Crypto Exchange Coinbase To Offer Bitcoin Futures Product on New Derivatives Exchange

June 24, 2022 The Daily Hodl

Here’s how pro traders could use Bitcoin options to buy the $20K BTC dip

June 24, 2022 Coin Telegraph

Here’s how pro traders could use Bitcoin options to buy the K BTC dip

Babel Finance

Predicting a market bottom is pretty much impossible, but clever traders use options strategies like the Iron Condor setup to target a particular trading price range.

Bitcoin hit a 2022 low at $17,580 on June 18 and many traders are hopeful that this was the bottom, but (BTC) has been unable to produce a daily close above $21,000 for the past six days. For this reason, traders are uncomfortable with the current price action and the threat of many CeFi and DeFi companies dealing with the loss of user funds and possible insolvency is weighing on sentiment.

The blowback from venture capital Three Arrows Capital (3AC) failing to meet its financial obligations on June 14 and Asia-based lending platform Babel Finance citing liquidity pressure as a reason for pausing withdrawals are just two of the most recent examples.

This news has caught the eyes of regulators, especially after Celsius, a crypto lending firm, suspended user withdrawals on June 12. On June 16, securities regulators from five states in the United States of America reportedly opened investigations into crypto lending platforms.

There is no way to know when the sentiment will change and trigger a Bitcoin bull run, but for traders who believe BTC will reach $28,000 by August, there is a low-risk options strategy that yields a decent return with limited risk.

The "Iron Condor" provides returns for a specific price range

Sometimes throwing a "hail Mary" pays off by leveraging ten times via futures contracts . However, most traders are looking for ways to maximize gains while limiting losses. For example, the skewed "Iron Condor" maximizes profits near $28,000 by the end of August, but limits losses if the expiry is below $22,000.

*Bitcoin options Iron Condor skewed strategy returns. Source: Deribit Position Builder*

The call option gives its holder the right to acquire an asset at a fixed price in the future. For this privilege, the buyer pays an upfront fee known as a premium.

Meanwhile, the put option provides its holder the privilege to sell an asset at a fixed price in the future, which is a downside protection strategy. On the other hand, selling this instrument (put) offers exposure to the price upside.

The Iron Condor consists of selling the call and put options at the same expiry price and date. The above example has been set using the August 26 contracts, but it can be adapted for other timeframes.

The target profit area is $23,850 to $35,250

To initiate the trade, the investor needs to short 3.4 contracts of the $26,000 call option and 3.5 contracts of the $26,000 put option. Then, the buyer needs to repeat the procedure for the $30,000 options, using the same expiry month.

Buying 7.9 contracts of the $23,000 put option to protect from an eventual downside is also required. At another purchase of 3.3 contracts of the $38,000 call option to limit losses above the level.

This strategy yields a net gain if Bitcoin trades between $23,850 and $35,250 on August 26. Net profits peak at 0.63 BTC ($13,230 at current prices) between $26,000 and at $30,000, but they remain above 0.28 BTC ($5,880 at current prices) if Bitcoin trades in the $24,750 and $32,700 range.

The investment required to open this strategy is the maximum loss, hence 0.28 BTC or $5,880, which will happen if Bitcoin trades below $23,000 or above $38,000 on August 26. The benefit of this trade is that a reasonable target area is covered, while providing a 125% return versus the potential loss.

Coinbase Derivatives Exchange Reveals Nano Bitcoin Futures Product

June 24, 2022 Bitcoin.com

US Congressional hearing on digital asset regulation focuses on disclosure

June 23, 2022 Coin Telegraph

CFTC

An agriculture subcommittee heard a CFTC official, a law professor, a Chainalysis cofounder and Charles Hoskinson air their views on regulation and adjacent topics.

Disclosure was an important theme at a United States House of Representatives hearing on digital asset regulation Thursday. Although chair of the House Agriculture Committee Subcommittee on Commodity Exchanges, Energy and Credit Sean Maloney specified that it would focus on gaps in the oversight and regulation of derivatives and underlying spot markets, the discussion ranged widely.

The Agriculture Committee oversees the Commodity Futures Trading Commission (CFTC), which regulates financial markets along with the Securities and Exchange Commission (SEC).

Chainalysis cofounder and chief strategy officer Jonathan Levin said in his testimony that cryptocurrency’s transparency provides unique insights into the markets, including their risks. The blockchain can unlock information about the entire network behind illicit activities.

Georgetown University law professor Christopher Brummer pointed out that disclosure law assumes issuers have access to information consumer do not have, while blockchain is transparent but hard to understand.

“Disclosures should be read, not just filed,” Brummer said several times in reference to consumer protection, adding that increasing the complexity of disclosure could create vulnerabilities for consumers.

Input Output Global CEO Charles Hoskinson spoke about “mindset” and emphasized the importance of principles and the need to strive for “efficacy over strictness” in the rapidly evolving, global market. He later expressed the opinion that no regulators are doing a good job with Know Your Customer/Anti-Money Laundering safeguards at the moment, however.

As the participants moved on to more specific questions, CFTC market oversight division director Vincent McGonagle said his agency has the expertise to oversee the cash market for crypto. That market is now regulated by state money transmission laws, but there are multiple proposals to grant the CFC authority over it. The state laws have a different purpose from the CFTC’s concerns, McGonagle said, and centralized clearing adds a layer of consumer protection.

Digital assets are defined as commodities, McGonagle said, but the SEC can determine when they are securities. Determining the point at which securities are fully decentralized and no longer subject to SEC oversight is a “tangled web,” McGonagle continued, and there is no legal mechanism for transferring those commodities back to CFTC oversight.

Friday’s $2.25B Bitcoin options expiry might prove that $17.6K wasn’t BTC’s bottom

June 22, 2022 Coin Telegraph

Friday’s .25B Bitcoin options expiry might prove that .6K wasn’t BTC’s bottom

Coin Telegraph

Bulls bet on BTC prices above $60,000 for the June monthly options expiry, and now pro investors are going to pay a hefty price for being wrong.

Bitcoin (BTC) has been trying to break out of a descending trend for the past week and the first attempt on June 16 failed to break the $22,600 resistance. The second attempt at $21,400 on June 21 was followed by an 8% price correction. After two failed breakouts, the price currently trades below $20,000 and raises questions on whether $17,600 was really the bottom.

*Bitcoin/USD 4-hour chart at Coinbase. Source: TradingView*

The longer it takes for BTC to break from this bearish pattern, the stronger the resistance line becomes and traders are following the trend closely. That is precisely why it’s important for bulls to show strength during this week’s $2.25 billion monthly options expiry.

Regulatory uncertainty continues to weigh down on crypto markets after European Central Bank (ECB) president Christine Lagarde voiced her conviction on the necessity of tighter scrutiny. On June 20, Lagarde expressed her thoughts on the sector’s staking and lending activities: "[...] the lack of regulation is often covering fraud, completely illegitimate claims about valuation and very often speculation as well as criminal dealings."

Bitcoin miners being forced to liquidate their BTC holdings is adding more negative pressure to BTC price and data from Arcane Research shows that publicly-listed Bitcoin mining firms sold 100% of their BTC production in May compared to the usual 20% to 40% in previous months. Collectively, miners hold 800,000 BTC, which creates concerns about a possible sell-off. The Bitcoin price correction drained miners' profitability because the production cost has, at times, exceeded their margins.

The June 24 options expiry will be especially alarming for investors because Bitcoin bears are likely to profit by $620 million by suppressing BTC below $20,000.

Bulls placed their bets at $40,000 and higher

The open interest for the June 24 options expiry is $2.25 billion, but the actual figure will be much lower since bulls were overly-optimistic. These traders completely missed the mark after BTC dumped below $28,000 on June 12, but their bullish bets for the monthly options expiry extend beyond $60,000.

*Bitcoin options aggregate open interest for June 24. Source: CoinGlass*

The 1.70 call-to-put ratio shows the dominance of the $1.41 billion call (buy) open interest against the $830 million put (sell) options. Nevertheless, as Bitcoin stands below $20,000, most bullish bets will likely become worthless.

If Bitcoin's price remains below $21,000 at 8:00 am UTC on June 24, only 2% of these call options will be available. This difference happens because a right to buy Bitcoin at $21,000 is worthless if BTC trades below that level on expiry.

Bears have the bulls by the horns

Below are the three most likely scenarios based on the current price action. The number of Bitcoin options contracts available on June 24 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $18,000 and $20,000: 500 calls vs. 33,100 puts. The net result favors the put (bear) instruments by $620 million.
Between $20,000 and $22,000: 2,800 calls vs. 27,00 puts. The net result favors bears by $520 million.
Between $22,000 and $24,000: 5,900 calls vs. 26,600 puts. The net result favors the put (bear) instruments by $480 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately, there's no easy way to estimate this effect.

A few more dips below $20,000 wouldn’t be suprising

Bitcoin bears need to push the price below $20,000 on June 24 to secure a $620 million profit. On the other hand, the bulls' best case scenario requires a pump above $22,000 to reduce the impact by $140 million.

Bitcoin bulls had $500 million in leveraged long positions liquidated on June 12 and 13, so they should have less margin than is required to drive the price higher. Considering this data, bears have higher odds of pinning BTC below $22,000 ahead of the June 24 options expiry.

Bitcoin futures enter backwardation for the first time in a year

June 20, 2022 Coin Telegraph

basis

Risk-averse BTC derivatives traders throw in the towel after futures contracts trade below the spot market price.

Bitcoin's (BTC) month-to-date chart is very bearish, and the sub-$18,000 level seen over the weekend was the lowest price seen since December 2020. Bulls' current hope depends on turning $20,000 to support, but derivatives metrics tell a completely different story as professional traders are still extremely skeptical.

*BTC-USD 12-hour price at Kraken. Source: TradingView*

It’s important to remember that the S&P 500 index dropped 11% in June, and even multi-billion dollar companies like Netflix, PayPal and Caesars Entertainment have corrected with 71%, 61% and 57% losses, respectively.

The U.S. Federal Open Market Committee raised its benchmark interest rate by 75 basis points on June 15, and Federal Reserve Chairman Jerome Powell hinted that more aggressive tightening could be in store as the monetary authority continues to struggle to curb inflation. However, investors and analysts fear this move will increase the recession risk. According to a Bank of America note to clients issued on June 17:

“Our worst fears around the Fed have been confirmed: they fell way behind the curve and are now playing a dangerous game of catch up.”

Furthermore, according to analysts at global investment bank JPMorgan Chase, the record-high total stablecoin market share within crypto is “pointing to oversold conditions and significant upside for crypto markets from here.” According to the analysts, the lower percentage of stablecoins in the total crypto market capitalization is associated with a limited crypto potential.

Currently, crypto investors face mixed sentiment between recession fears and optimism toward the $20,000 support gaining strength, as stablecoins could eventually flow into Bitcoin and other cryptocurrencies. For this reason, analysis of derivatives data is valuable in understanding whether investors are pricing higher odds of a downturn.

The Bitcoin futures premium turns negative for the first time in a year

Retail traders usually avoid quarterly futures due to their price difference from spot markets, but they are professional traders' preferred instruments because they avoid the perpetual fluctuation of contracts' funding rate.

These fixed-month contracts usually trade at a slight premium to spot markets because investors demand more money to withhold the settlement. This situation is not exclusive to crypto markets. Consequently, futures should trade at a 5%-to-12% annualized premium in healthy markets.

Bitcoin's futures premium failed to break above the 5% neutral threshold, while the Bitcoin price firmly held the $29,000 support until June 11. Whenever this indicator fades or turns negative, this is an alarming, bearish red flag signaling a situation is known as backwardation.

To exclude externalities specific to the futures instrument, traders must also analyze the Bitcoin options markets. For example, the 25% delta skew shows when Bitcoin market makers and arbitrage desks are overcharging for upside or downside protection.

In bullish markets, options investors give higher odds for a price pump, causing the skew indicator to fall below -12%. On the other hand, a market's generalized panic induces a 12% or higher positive skew.

The 30-day delta skew peaked at 36% on June 18, the highest-ever record and typical of extremely bearish markets. Apparently, the 18% Bitcoin price increase since the $17,580 bottom was sufficient enough to reinstall some confidence in derivatives traders. While the 25% skew indicator remains unfavorable for pricing downside risks, at least it no longer sits at the levels which reflect extreme aversion.

Analysts expect “maximum damage” ahead

Some metrics suggest that Bitcoin may have bottomed on June 18, especially since the $20,000 support has gained strength. On the other hand, market analyst Mike Alfred made it clear that, in his opinion, “Bitcoin is not done liquidating large players. They will take it down to a level that will cause the maximum damage to the most overexposed players like Celsius.”

Until traders have a better view of the contagion risk from the Terra ecosystem implosion, the possible insolvency of Celsius and the liquidity issues being faced by Three Arrows Capital, the odds of another Bitcoin price crash are high.

Ethereum price risks a drop below $1K if these key price metrics turn bearish

June 17, 2022 Coin Telegraph

Ethereum price risks a drop below K if these key price metrics turn bearish

Coin Telegraph

Two key Ethereum price metrics have yet to turn bearish, but it won’t take much to trigger an ETH drop below $1,000.

Ether (ETH) price is down 37.5% in the last 7 days and recent news reported that developers decided to postpone the network's migration to a proof-of-stake (PoS) consensus. This upgrade is expected to end the dependency on proof-of-work (PoW) mining and the Merge scalability solution that has been pursued for the past 6 years.

Competing smart contracts like BNB Token (BNB), Cardano (ADA) and Solana (SOL) outperformed Ether by 13% to 17% since June 8 even though there was a market-wide correction in the cryptocurrency sector. This suggests that the Ethereum network's issues also weighed on the ETH price.

The "difficulty bomb," feature was added to the code in 2016 as plans for the new consensus mechanism (formerly Eth2) were being formed. At the peak of the so-called "DeFi summer," Ethereum's average transaction costs surpassed $65 which was frustrating for even the most fervent users. This is precisely why the Merge plays such an important part in investors' eyes and, consequently, Ether price.

Options traders remain extremely risk-averse

Traders should look at Ether's derivatives markets data to understand how whales and market makers are positioned. The 25% delta skew is a telling sign whenever professional traders overcharge for upside or downside protection.

If traders expected an Ether price crash, the skew indicator would move above 10%. On the other hand, generalized excitement reflects a negative 10% skew. This is precisely why the metric is known as the pro traders' fear and greed metric.

*Ether 30-day options 25% delta skew: Source: Laevitas.ch*

The skew indicator improved on June 16, at least for a brief moment, as it touched 19%. However, as soon as it became evident that climbing above the $1,200 resistance would take longer than expected, the skew metric climbed back to 24%. The higher the index, the less inclined traders are to price downside risk.

Long-to-short data show traders are not interested in shorts

The top traders' long-to-short net ratio excludes externalities that might have solely impacted the options markets. By analyzing these positions on the spot, perpetual and quarterly futures contracts, one can better understand whether professional traders are leaning bullish or bearish.

There are occasional methodological discrepancies between different exchanges, so viewers should monitor changes instead of absolute figures.

*Exchanges' top traders Ether long-to-short ratio. Source: Coinglass*

Even though Ether has failed to sustain the $1,200 support, professional traders did not change their positions between June 14 and June 16, according to the long-to-short indicator.

Binance displayed a modest increase in its long-to-short ratio, as the indicator moved from 1.11 to 1.22 in two days. Thus, those traders slightly increased their bullish bets.

Huobi data shows a stable pattern as the long-to-short indicator stayed near 1.00 the whole time. Lastly, at OKX exchange, the metric oscillated drastically within the period but finished nearly unchanged at 1.04.

Hope for the best, but prepare for the worst

Overall, there hasn't been a significant change in whales' and market makers' futures positions despite Ether's plunge down to $1,012 on June 15. However, options traders fear that a crash below $1,000 remains feasible, but the negative newsflow heavily influences price.

If those whales and market makers had evidence that there could be a deeper price correction, this would have been reflected in the exchanges top traders' long-to-short ratio.

As the saying goes, "follow their actions, not their words", meaning traders should be prepared for sub-$1,000 Ether, but not as the base scenario.

Bitcoin derivatives data shows no ‘bottom’ in sight as traders avoid leveraged long positions

June 13, 2022 Coin Telegraph

Celsius

Is it time to be greedy? Experienced market makers and arbitrage desks have turned strongly risk-averse as BTC price dropped to $22,600.

Bitcoin (BTC) lost the $28,000 support on June 12 following worsening macroeconomic conditions. The United States Treasury 2-year note yield closed on June 10 at 3.10%, its highest level since December 2007. This shows that traders are demanding higher rates to hold their debt instruments and expect inflation to remain a persistent challenge.

Louis S. Barnes, a senior loan officer at Cherry Creek, stated that as the United States reported its highest inflation in 40 years, the mortgage-backed securities (MBS) markets had zero buyers. Barnes added:

"Stocks are down 2% today [June 10], but would be down a hell of a lot more if considering what a full-stop to housing will mean."

MicroStrategy and Celsius leverage use raised alarms

Bitcoin’s sell-off is adding more pressure to the cryptocurrency market and various media are discussing whether the U.S. Nasdaq-listed analytics and business intelligence company MicroStrategy and its $205 million Bitcoin-collateralized loan with Silvergate Bank will add to the current crypto collapse. The interest-only loan was issued on March 29, 2022, and secured by Bitcoin, which is held in a mutually authorized custodian's account.

As stated by Microstrategy's earnings call by chief financial officer Phong Le on May 3, if Bitcoin plummeted to $21,000, an additional amount of margin would be required. However, on May 10, Michael Saylor clarified that the entire 115,109 BTC position could be pledged, reducing the liquidation to $3,562.

Lastly, Crypto staking and lending platform Celsius suspended all network withdrawals on June 13. Speculations of insolvency quickly emerged as the project moved massive amounts of wBTC and Ether (ETH) to avoid liquidation at Aave (AAVE), a popular staking and lending platform.

Just realized people with open borrows at low collateral ratios on Celsius are having to choose between getting liquidated due to market crash or depositing more collateral into a service that has frozen withdrawals and is potentially insolvent.

Woof.
— Nick Neuman (, ) (@Nneuman) June 13, 2022

Celsius reported surpassing $20 billion in assets under management in August 2021, which was ideally more than enough to cause a doomsday scenario. While there is no way to determine how this liquidity crisis will unfold, the event caught Bitcoin's investors at the worst possible moment.

Bitcoin futures metrics are near bearish territory

Bitcoin's futures market premium, the primary derivatives metric, briefly moved to the negative area on June 13. The metric compares longer-term futures contracts and the traditional spot market price.

These fixed-calendar contracts usually trade at a slight premium, indicating that sellers request more money to withhold settlement for longer. As a result, the three-month futures should trade at a 4% to 10% annualized premium in healthy markets, a situation known as contango.

Whenever that indicator fades or turns negative (backwardation), it is an alarming red flag because it indicates that bearish sentiment is present.

*Bitcoin 3-month futures annualized premium. Source: Laevitas.ch*

While the futures premium had already been below the 4% threshold during the past nine weeks, it managed to sustain a moderate premium until June 13. While the current 1% premium might seem optimistic, it is the lowest level since April 30 and sits at the edge of a generalized bearish sentiment.

An unhealthy derivatives market is an ominous sign

Traders should analyze Bitcoin's options pricing to further prove that the crypto market structure has deteriorated. For example, the 25% delta skew compares similar call (buy) and put (sell) options. This metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.

The opposite holds when greed is the prevalent mood, which causes the 25% delta skew indicator to shift to the negative area.

*Deribit 30-day Bitcoin options 25% delta skew. Source: laevitas.ch*

Readings between negative 8% and positive 8% are usually deemed neutral, but the 26.6 peak on June 13 was the highest reading ever registered. This aversion to pricing downside risks is unusual even for March 2020, when oil futures plunged to the negative side for the first time in history and Bitcoin crashed below $4,000.

The main message from Bitcoin derivatives markets is that professional traders are unwilling to add leverage long positions despite the extremely low cost. Furthermore, the absurd price gap for put (sell) options pricing shows that the June 13 crash to $22,600 caught experienced arbitrage desks and market markers by surprise.

For those aiming to "buy the dip" or "catch a falling knife," a clear bottom will only be formed once derivatives metrics imply that the market structure has improved. That will require the BTC futures' premium to reestablish the 4% level and options markets to find a more balanced risk assessment as the 25% delta skew returns to 10% or lower.

derivatives