Bitcoin bulls aim to flip $30K to support, but derivatives data show traders lack confidence

May 16, 2022 Coin Telegraph

Bitcoin bulls aim to flip K to support, but derivatives data show traders lack confidence

The BTC futures premium flashed a slightly positive reading, but options markets show extreme fear from whales and market markers.

Bitcoin (BTC) bounced 19% from the $25,400 low on May 12, but has investor confidence in the market been restored? Judging by the ascending channel formation, it’s possible that bulls at least have plans to recover the $30,000 level in the short term.

*Bitcoin/USD 4-hour price at Bitstamp. Source: TradingView*

Does derivatives data support reclaiming $30,000, or is Bitcoin potentially heading to another leg down after failing to break above $31,000 on May 16?

Bitcoin price falters in the face of regulatory concerns and the Terra debacle

One factor placing pressure on BTC price could be the Luna Foundation Guard (LFG) selling 80,081 Bitcoin, or 99.6%, of their position.

On May 16, LFG released details on the remaining crypto collateral and from one side, this project's sell-off risk has been eliminated, but investors question the stability of other stablecoins and their decentralized finance (DeFi) applications.

Recent remarks from FTX CEO Sam Bankman-Fried about proof-of-work (PoW) mining environmental and scalability issues further fueled the current negative sentiment. According to Bankman-Fried, the use of proof-of-stake (PoS) consensus is better suited to accommodate millions of transactions.

On May 14, a local United Kingdom newspaper reported the Department of Treasury's intention to regulate stablecoins across Britain. According to the Treasury spokesman, the plan does not involve legalizing algorithmic stablecoins and instead prefers 1:1 fully-backed stablecoins.

While this news might have impacted market sentiment and BTC price, let’s take a look at how larger-sized traders are positioned in the futures and options markets.

The Bitcoin futures premium is showing resilience

The basis indicator measures the difference between longer-term futures contracts and the current spot market levels. The annualized premium of Bitcoin futures should run between 5% and 10% to compensate traders for "locking in" the money for two to three months until the contract expires. Levels below 5% are bearish, while numbers above 10% indicate excessive demand from longs (buyers).

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

The above chart shows that Bitcoin's basis indicator moved below the 5% neutral threshold on April 6, but there has been no panic after the sell-off to $25,400 on May 12. This means that the metric is mildly positive.

Even though the basis indicator points to bearish sentiment, one must remember that Bitcoin is down 36% year-to-date and 56% below its $69,000 all-time high.

Options traders are beyond stressed

The 25% options delta skew is extremely useful because it shows when Bitcoin arbitrage desks and market makers are overcharging for upside or downside protection.

If option investors fear a Bitcoin price crash, the skew indicator will move above 10%. On the other hand, generalized excitement reflects a negative 10% skew.

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

The skew indicator moved above 10% on April 6, entering the "fear" level because options traders overcharged for downside protection. However, the current 19% level remains extremely bearish and the recent 25.5% was the worst reading ever registered for the metric.

Although Bitcoin's futures premium was resilient, the indicator shows a lack of interest from leverage buyers (longs). In short, BTC options markets are still stressed and suggest that professional traders are not confident that the current ascending channel pattern will hold.

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.

Bitcoin and Ethereum had a rough week, but derivatives data reveals a silver lining

May 13, 2022 Coin Telegraph

Asia

BTC, ETH and altcoin prices were crushed this week, but the futures funding rate shows retail traders are not ready to become permabears.

This week the crypto market endured a sharp drop in valuation after Coinbase, the leading U.S. exchange, reported a $430 million quarterly net loss and South Korea announced plans to introduce a 20% tax on crypto gains.

During its worst moment, the total market crypto market cap faced a 39% drop from $1.81 trillion to $1.10 trillion in seven days, which is an impressive correction even for a volatile asset class. A similar size decrease in valuation was last seen in February 2021, creating bargains for the risk-takers.

*Total crypto market capitalization, USD billion. Source: TradingView*

Even with this week’s volatility, there were a few relief bounces as Bitcoin (BTC) bounced 18% from a $25,400 low to the current $30,000 level and Ether (ETH) price also made a brief rally to $2,100 after dropping to a near-year low at $1,700.

Institutional investors bought the dip, according to data from the Purpose Bitcoin ETF. The exchange-traded instrument is listed in Canada and it added 6,903 BTC on May 12, marking the largest single-day buy-in ever registered.

On May 12, the United States Treasury Secretary Janet Yellen stated that the stablecoin market is not a threat to the country’s financial stability. In a hearing of the House Financial Services Committee, Yellen added:

“They present the same kind of risks that we have known for centuries in connection with bank runs.”

The total crypto capitalization down 19.8% in seven days

The aggregate market capitalization of all cryptocurrencies shrank by 19.8% over the past seven days, and it currently stands at $1.4 trillion. However, some mid-capitalization altcoins were decimated and dropped more than 45% in one week.

Below are the top gainers and losers among the 80 largest cryptocurrencies by market capitalization.

*Weekly winners and losers among the top-80 coins. Source: Nomics*

Maker (MKR) benefited from the demise of a competing algorithmic stablecoin. While TerraUSD (UST) succumbed to the market downturn, breaking its peg well below $1, Dai (DAI) remained fully functional.

Terra (LUNA) faced an incredible 100% crash after the foundation responsible for administering the ecosystem reserve was forced to sell its Bitcoin position at a loss and issue trillions of LUNA tokens to compensate for its stablecoin breaking below $1.

Fantom (FTM) also faced a one-day 15.3% drop in the total value locked, the amount of FTM coins deposited on the ecosystem’s smart contracts. Fantom has been struggling since prominent Fantom Foundation team members Andre Cronje and Anton Nell resigned from the project.

Tether premium shows trickling demand from retail traders

The OKX Tether (USDT) premium indirectly measures retail trader crypto demand in China. It measures the difference between China-based USDT peer-to-peer trades and the official U.S. dollar currency.

Excessive buying demand puts the indicator above fair value, which is 100%. On the other hand, Tether‘s market offer is flooded during bearish markets, causing a 2% or higher discount.

*Tether (USDT) peer-to-peer vs. USD/CNY. Source: OKX*

Currently, the Tether premium stands at 101.3%, which is slightly positive. Furthermore, there has been no panic over the past two weeks. Such data indicate that Asian retail demand is not fading away, which is bullish, considering that the total cryptocurrency capitalization dropped 19.8% over the past seven days.

Altcoin funding rates have also dropped to worrying levels. Perpetual contracts (inverse swaps) have an embedded rate that is usually charged every eight hours. These instruments are retail traders‘ preferred derivatives because their price tends to perfectly track regular spot markets.

Exchanges use this fee to avoid exchange risk imbalances. A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

*Seven-day accumulated perpetual futures funding rate. Source: Coinglass*

Notice how the accumulated seven-day funding rate is mostly negative. This data indicates higher leverage from sellers (shorts). As an example, Solana‘s (SOL) negative 0.90% weekly rate equals 3.7% per month, a considerable burden for traders holding futures positions.

However, the two leading cryptocurrencies did not face the same leverage selling pressure, as measured by the accumulated funding rate. Typically, when there‘s an imbalance caused by excessive pessimism, that rate can easily move below negative 3% per month.

The absence of leverage shorts (sellers) in futures markets for Bitcoin and Ethereum and the modest bullishness from Asian retail traders should be interpreted as extremely healthy, especially after a -19.8% weekly performance.

3 reasons why bears aim to pin Bitcoin below $30K for this week’s BTC options expiry

May 12, 2022 Coin Telegraph

3 reasons why bears aim to pin Bitcoin below K for this week’s BTC options expiry

Coin Telegraph

BTC price is in a freefall and data suggests bears plan to keep the price below $30,000 until the May 13 options expiry.

Investors were surprised by Bitcoin (BTC) price falling to $25,500 on May 12, and this shock extended to options traders. The strong correction was not restricted to cryptocurrencies and some large-cap stocks faced 25% or heavier weekly losses in the same period.

Growing economic uncertainty impacted S&P 500 index members like Illumina (ILMN), which declined by 27% over the past seven days and Caesars Entertainment (CZR) faced a 25% drop. Shopify (SHOP), one of the largest Canadian e-commerce companies also saw its stock plunge by 28%.

Traders are scratching their heads and asking whether it’s the U.S. Federal Reserve tightening to blame for the volatility. The monetary authority has been increasing the interest rates and has also reaffirmed their plans to sell bonds and debt-related instruments.

While this may be the case, traders should remember that the stock market rallied 113% between 2017 and 2021, as measured by the S&P 500 index. Keeping that in mind, the recent downturn is also a reflection of excessive valuations and overconfidence from investors.

Fortunately, not everything has been negative for Bitcoin. On May 10, Townsquare Media, a New York-based digital marketing and radio station company, disclosed a $5 million Bitcoin investment. Nubank, the largest digital bank in Brazil and Latin America, also announced that it would allocate roughly 1% of its net assets to Bitcoin.

Bulls were taken by surprise

Bitcoin's drop to $25,500 on May 12 took bulls by surprise because less than 1% of the call (buy) option bets for May 13 have been placed below this price level.

Bulls might have been fooled by the recent attempt to overtake $40,000 on May 4, because their bets for May 12's $610 million options are largely concentrated above $34,000.

*Bitcoin options aggregate open interest for May 13. Source: Coinglass*

A broader view using the 0.90 call-to-put ratio shows a slight advantage for the $320 million put (sell) options versus the $290 million call (buy) instruments. But now that Bitcoin is below $30,000, most of the bullish bets will become worthless.

If Bitcoin's price remains below $30,000 at 8:00 am UTC on May 13, only $1 million worth of those call (buy) options will be available. This difference happens because there is no use in the right to buy Bitcoin at $30,000 if it trades below this level at expiry.

Bears are aiming for a $260 million profit

The three most likely scenarios based on the current price action are listed below. The number of options contracts available on May 13 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side makes up the theoretical profit:

Between $27,000 and $30,000: 0 calls vs. 9,350 puts. The net result favors the put (bear) instruments by $260 million.
Between $30,000 and $32,000: 150 calls vs. 7,500 puts. The net result favors bears by $220 million.
Between $32,000 and $33,000: 1,100 calls vs. 5,900 puts. The net result benefits put (bear) options by $150 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 instance, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price but unfortunately, there is not an easy way to estimate this effect.

Bears have incentives to suppress Bitcoin price

Bitcoin bears need to hold the price below $30,000 on May 13 to secure a $260 million profit. On the other hand, the bulls' best case scenario requires a 10.7% gain from the current $28,900 to the $32,100 zone to limit their losses to $150 million.

Bitcoin bulls had $1.73 billion in leveraged long positions liquidated over the past three days, so they probably have fewer resources to push the price higher in the short term. With this said, bears have greater odds of suppressing BTC below $30,000 before the May 13 options expiry.

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.

Bitcoin fights to hold $29K as fear of regulation and Terra’s UST implosion hit crypto hard

May 11, 2022 Coin Telegraph

Bitcoin fights to hold K as fear of regulation and Terra’s UST implosion hit crypto hard

Bitcoin Price

Bitcoin leverage traders show little interest in going long even as BTC price flirts with new lows below $29,000.

Bitcoin (BTC) price initially bounced from its recent low at $29,000 but the overall market sentiment after a 25% price drop in five days is still largely negative. Currently, the crypto "Fear and Greed Index," which uses volatility, volume, social metrics, Bitcoin dominance and Google trends data, has plunged to its lowest level since March 2020 and at the moment, there appears to be little protecting the market against further downside.

*Crypto "Fear and Greed index". Source: Alternative.me*

Regulation continues to weigh down the markets

Regulation is still the main threat weighing on markets and it's clear that investors are taking a risk-off approach to high volatility assets. Earlier this week, during a hearing of the Senate Banking Committee, United States Secretary of the Treasury Janet Yellen called for a regulatory framework on stablecoins and specifically addressed the TerraUSD (UST) stablecoin plunging below $0.70.

Furthermore, the United Kingdom introduced two bills aimed at addressin crypto regulation on May 10. The Financial Services and Markets Bill and the Economic Crime and Corporate Transparency Bill aim to strengthen the country's financial services industry, including supporting "the safe adoption of cryptocurrencies."

Meanwhile, searches for "Bitcoin" and “crypto” on Google are nearing their lowest levels in 17 months.

Global search for “Bitcoin” and “Cryptos”. Source: Google Trends

This indicator could partially explain why Bitcoin is 56% below its $69,000 all-time high because the public interest is low but let's take a look at how professional traders are positioned in derivatives markets.

Long-to-short data confirms a lack of buyers' demand

The top traders' long-to-short net ratio analyzes the positions on the spot, perpetual and futures contracts. From an analysis point of view, it gives a better understanding on whether professional traders are bullish or bearish.

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

*Exchange top traders Bitcoin long-to-short ratio. Source: Coinglass*

According to the long-to-short indicator, Bitcoin might have jumped 4% since the $29,000 low on May 11, but professional traders did not increase their bullish bets. For instance, OKX's top traders' ratio decreased from 1.20 to the current 1.00 level.

Moreover, Binance data shows those traders stable near 1.10, and a similar trend happened at Huobi as the top traders' long-to-short ratio stood at 0.97. Data shows no demand for leverage buys among professional investors despite the 5% price recovery.

CME futures traders are no longer bearish

To further prove that the crypto market structure has deteriorated, traders should analyze the CME's Bitcoin futures contracts premium. 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 one-month futures should trade at a 0.5% to 1% 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.

*BTC CME 1-month forward contract vs. BTC/USD at FTX. Source: TradingView*

The chart above shows how the indicator entered backwardation on May 10 and the move marks the lowest reading in two months at a negative 0.4% premium.

Data shows that institutional traders are below the "neutral" threshold measured by the futures' basis and this points to the formation of a bearish market structure.

Furthermore, the top traders' long-to-short data shows a lack of appetite despite the quick 4% price recovery from the $29,000 level and the fact that BTC price now trades near the same level is also concerning. Unless the derivatives metrics show some improvement, the odds of further price correction remain high.

Any dip buyers left? Bulls are largely absent as the total crypto market cap drops to $1.65T

May 6, 2022 Coin Telegraph

Any dip buyers left? Bulls are largely absent as the total crypto market cap drops to .65T

1inch

Weak retail demand and bearish derivatives data reflect a dismal short-term outlook for the crypto market.

The total crypto market capitalization has been trading within a descending channel for 24 days and the $1.65 trillion support was retested on May 6. The drop to $1.65 trillion was followed by Bitcoin (BTC) reaching $35,550, its lowest price in 70 days.

*Total crypto market cap, USD billion. Source: TradingView*

In terms of performance, the aggregate market capitalization of all cryptocurrencies dropped 6% over the past seven days, but this modest correction in the overall market does not represent some mid-capitalization altcoins, which managed to lose 19% or more in the same time frame.

As expected, altcoins suffered the most

In the last seven days, Bitcoin price dropped 6% and Ether (ETH) declined by 3.5%. Meanwhile, altcoins experienced what can only be described as a bloodbath. Below are the top gainers and losers among the 80 largest cryptocurrencies by market capitalization.

Tron (TRX) rallied 26.9% after TRON DAO rolled out a USDD, a decentralized stablecoin, on May 5. The algorithmic stablecoin is connected to the Ethereum and BNB Chain (BNB) through the BTTC cross-chain protocol.

1inch (1INCH) gained 5.6% after the decentralized exchange governance application became Polygon’s (MATIC) network leader by completing 6 million swaps on the network.

STEPN (GMT), the native token of the popular move-to-earn lifestyle app, declined 35.7%, adjusting after a 70% rally between April 18 and April 28. A similar movement happened to Apecoin (APE) after the token pumped 94% between April 22 and April 28.

The Tether premium flipped negative on May 6

The OKX Tether (USDT) premium gauges China-based retail demand and it measures the difference between the China-based peer-to-peer trades and the United States dollar.

Excessive buying demand puts the indicator above fair value at 100%. On the other hand, Tether’s market offer is flooded during bearish markets, causing a 4% or higher discount.

The OKX Tether premium peaked at 1.7% on April 30, indicating some excess demand from retail. However, the metric reverted to a 0% premium over the next five days.

More recently, in the early hours of May 6, the OKX Tether premium flipped to -1% negative. Data shows retail sentiment worsened as Bitcoin moved below $37,000.

Futures markets show mixed sentiment

Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

*Accumulated 7-day perpetual futures funding rate. Source: Coinglass*

As shown above, the accumulated seven-day funding rate is slightly positive for Bitcoin and Ether. Data indicates slightly higher demand from longs (buyers), but nothing that would force traders to close their positions. For instance, a positive 0.15% weekly rate equals 0.6% per month, thus unlikely to cause harm.

On the other hand, altcoins’ 7-day perpetual futures funding rate was -0.30%. This rate is equivalent to 1.2% per month and indicates higher demand from shorts (sellers).

Signs of weak retail demand as indicated by OKX Tether data and the negative funding rate on altcoins are a signal that traders are unwilling to buy at the critical $1.65 trillion crypto market capitalization. Buyers seem to be waiting for further dips before stepping in, so further price corrections will likely follow.

Spanish Securities Regulator Orders Binance to Stop Offering Cryptocurrency Derivatives

May 6, 2022 Bitcoin.com

Descending channel pattern and weak futures data continue to constrain Ethereum price

May 5, 2022 Coin Telegraph

basis

ETH derivatives metrics and technical analysis point toward further downside for Ethereum price.

Despite bouncing from a 45-day low on April 30, Ether (ETH) price is still stuck in a descending channel and the subsequent 9% gain over the past four days was just enough to get the altcoin to test the pattern's $2,870 resistance.

*Ether/USD price at FTX. Source: TradingView*

Federal Reserve monetary policy continues to be a major influence on crypto prices and this week’s volatility is most likely connected to comments from the FOMC. On May 4, the United States Federal Reserve raised its benchmark overnight interest rate by half a percentage point, which is the biggest hike in 22 years. Although it was a widely expected and unanimous decision, the monetary authority said it would reduce its $9 trillion asset base starting in June.

Chairman Jeremy Powell explained that the Federal Reserve is determined to restore price stability even if that means hurting the economy with lower business investment and household spending. Powell also dismissed the importance of the gross domestic product decline over the first three months of 2022.

Even though Ether's price has corrected by 14% over the course of a month, the network's value locked in smart contracts (TVL) increased by 7% in 30 days to 25.2 million Ether, according to data from DefiLlama. For this reason, it is worth exploring if the price drop below $3,000 impacted derivatives traders' sentiment.

ETH futures show traders are still bearish

To understand whether the market has flipped bearish, traders must analyze the Ether futures contracts' premium, also known as the basis rate. Unlike a perpetual contract, these fixed-calendar futures do not have a funding rate, so their price will differ vastly from regular spot exchanges.

One can gauge the market sentiment by measuring the expense gap between futures and the regular spot market.

*Ether 3-month futures premium. Source: Laevitas.ch*

To compensate for traders' deposits until the trade settles, futures should trade at a 5% to 12% annualized premium in healthy markets. Yet, as displayed above, Ether's annualized premium has been below such a threshold since April 5.

Despite a slight improvement over the past 24 hours, the current 3.5% basis rate is usually deemed bearish as it signals a lack of demand for leverage buyers.

Sentiment in options markets worsened

To exclude externalities specific to the futures instrument, traders should also analyze the options markets. For instance, 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 prevalent, causing the 25% delta skew indicator to shift to the negative area.

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

A 25% skew indicator range between negative 8% and positive 8% is usually considered a neutral area. However, the metric has been above such a threshold since April 16 and is currently at 14%.

With option traders paying higher premiums for downside protection, it is safe to conclude that the sentiment has worsened in the past 30 days. Presently, there is a growing sense of bearish sentiment in the market.

Of course, none of this data can predict if Ether will continue to respect the descending channel, which currently holds a $2,950 resistance. Still, considering the current derivatives data, there is reason to believe that an eventual pump above $3,000 will likely be short-lived.

Bitcoin pushes to $40K, but are bulls strong enough to win Friday’s $735M options expiry?

May 4, 2022 Coin Telegraph

Bitcoin pushes to K, but are bulls strong enough to win Friday’s 5M options expiry?

Coin Telegraph

$735 million in BTC options expire on May 6 and data suggests that the current macroeconomic conditions will continue to favor bears.

Bitcoin (BTC) price has been stuck in a falling wedge pattern for the past two months and during this time it has tested the $37,600 support on multiple instances.

Adding to this “bearish” price action, BTC is down 16% year-to-date, which is in line with the Russell 2000s performance.

Bitcoin/USD 1-day chart at FTX. Source: TradingView

The real driver of Bitcoin’s current price action is investors’ concerns about worsening macroeconomic conditions. Professional investors are worried about the impact of the U.S. Federal Reserve’s tightening economic policies and on May 3, billionaire hedge fund manager Paul Tudor Jones said that the environment for investors is worse than ever because the monetary authority is raising interest rates when financial conditions are already worsening.

On May 4, CNBC reported that the European Union implemented new sanctions to phase out Russian crude oil imports within six months and European Commission President Ursula von der Leyen said, "This will be a complete import ban on all Russian oil, seaborne and pipeline, crude and refined."

For these reasons, traders are increasingly concerned about the potential impact of a global macroeconomic crisis on cryptocurrency markets. If global economies enter a recession, investors will seek protection by moving away from risk-on asset classes like Bitcoin.

Bulls did not expect prices below $40,000

The open interest for the May 6 options expiry in Bitcoin is $735 million, but the actual figure will be lower since bulls were caught by surprise as BTC moved below $40,000.

*Bitcoin options aggregate open interest for May 6. Source: CoinGlass*

The 1.22 call-to-put ratio reflects the $405 million call (buy) open interest against the $330 million put (sell) options. Nevertheless, as Bitcoin stands near $39,000, 89% of the bullish bets will likely become worthless.

Meanwhile, if Bitcoin's price remains below $39,000 on May 6, bears will have $100 million worth of these put (sell) options available. This difference happens because there is no use in a right to sell Bitcoin at $36,000 if it trades above that level on expiry.

Bears can secure a $145 million profit on Friday

Below are the four most likely scenarios based on the current price action. The number of options contracts available on May 6 for call (buy) and put (sell) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $37,000 and $39,000: 500 calls (buy) vs. 4,300 puts (sell). The net result favors bears by $145 million.
Between $39,000 and $40,000: 1,200 calls (buy) vs. 2,500 puts (sell). Bears have a $50 million advantage.
Between $40,000 and $41,000: 3,800 calls (buy) vs. 1,100 puts (sell). The net result favors bulls by $105 million.
Between $41,000 and $42,000: 5,300 calls (buy) vs. 700 puts (sell). Bulls boost their gains to $190 million.

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

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

Bitcoin bears need to sustain the price below $39,000 on May 6 to secure a $145 million profit. On the other hand, bulls can avoid a loss by pushing BTC above $40,000, enough to net them $100 million in gains. Considering the bearish macroeconomic conditions, bears seem better positioned for May 6's expiry.

3 reasons why Bitcoin price is clinging to $38,000

May 3, 2022 Coin Telegraph

3 reasons why Bitcoin price is clinging to ,000

basis

BTC is in a lengthy downtrend but three key price metrics explain why traders are confident that the $38,000 level will hold.

Bitcoin (BTC) has been unable to break from the 26-day-long descending channel. Investors are uncomfortable holding volatile assets after the United States Federal Reserve pledged to reduce its $9 trillion balance sheet.

While inflation has been surging worldwide, the first signs of an economic downturn showed as the United Kingdom's retail sales fell 1.4% in March. Moreover, Japan's industrial production dropped 1.7% in March. Lastly, the U.S. gross domestic product fell 1.4% in the first quarter of 2022.I

*Bitcoin/USD price at FTX. Source: TradingView*

This bearish macroeconomic scenario can partially explain why Bitcoin has been on a downtrend since early April. Still, one needs to analyze how professional traders position themselves and derivatives markets to provide some excellent indicators.

The Bitcoin futures premium is is muted

To understand whether the current bearish trend reflects top traders' sentiment, one should analyze Bitcoin's futures contracts premium, which is also known as a "basis."

Unlike a perpetual contract, these fixed-calendar futures do not have a funding rate, so their price will differ vastly from regular spot exchanges. A bearish market sentiment causes the three-month futures contract to trade at a 5% or lower annualized premium (basis).

On the other hand, a neutral market should present a 5% to 12% basis, reflecting market participants' unwillingness to lock in Bitcoin for cheap until the trade settles.

*Bitcoin 3-month futures premium. Source: laevitas.ch*

The above chart shows that Bitcoin's futures premium has been below 5% since April 6, indicating that futures market participants are reluctant to open leverage long (buy) positions.

Options traders remain in the "fear" zone

To exclude externalities specific to the futures instrument, traders should also analyze the options markets. The 25% delta skew compares equivalent call (buy) and put (sell) options. The indicator will turn positive when "fear" is prevalent because the protective put options premium is higher than the call options.

The opposite holds when market makers are bullish, causing the 25% delta skew to shift to the negative area. Readings between negative 8% and positive 8% are usually deemed neutral.

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

The above chart shows that Bitcoin option traders have been signaling "fear" since April 8, just as BTC broke below $42,500 following a 10% drop in four days. Of course, such a metric could be reflecting the 16% negative BTC price performance over the past month, so not exactly a surprise.

Margin markets sustain its optimism

Margin trading allows investors to borrow cryptocurrency and leverage their trading position, thus potentially increasing returns. For example, a trader can buy cryptocurrencies by borrowing Tether (USDT) to increase their exposure.

On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet on its price decline. Unlike futures contracts, the balance between margin longs and shorts isn't always matched.

*OKEx USDT/BTC margin lending ratio. Source: OKEx*

The above chart shows that traders have been borrowing more Bitcoin recently, as the ratio decreased from 20 on April 30 to the current 12.5. The higher the indicator, the more confident professional traders are with Bitcoin's price.

Despite some additional Bitcoin borrowing activity aimed at betting on the price downturn, margin traders remain mostly optimistic according to the USDT/BTC lending ratio.

Bitcoin traders fear further correction as macroeconomic indicators deteriorate as investors expect a potential crisis impact on riskier markets. However, there are no signs of leverage short (negative) bets using margin or futures, meaning sellers lack conviction at $38,000.

Afraid to buy the dip? Bitcoin options provide a safer way to ‘go long’ from $38K

May 2, 2022 Coin Telegraph

Afraid to buy the dip? Bitcoin options provide a safer way to ‘go long’ from K

Coin Telegraph

BTC price continues to trade in a wide range, providing an opportunity for options traders to use the Iron Condor strategy.

The last time Bitcoin (BTC) traded above $50,000 was Dec. 27, 2021. Since then, four months have passed, but traders seem somewhat optimistic that inflation has hit the necessary threshold to trigger cryptocurrency adoption.

In theory, the 8.5% inflation in the United States means that every five years, the prices increase by 50%. This essentially turns $100 into $66 by slashing 33% of the dollar’s purchasing power.

The U.S. Federal Reserve FOMC meeting is expected to rule on the interest rates on May 4, but more importantly, the FED is expected to announce a program to offload part of its $9 trillion balance sheet. Thus, instead of supporting debt and mortgage markets, the U.S. Central Bank will likely sell $95 billion worth of these assets every month.

The consequences could be severe and risk markets have priced in such a scenario. For instance, the Rusell 2000 mid-capitalization stock market index is down 16.5% year-to-date in 2022. Similarly, as measured by the MSCI China index, the Chinese stock market is currently facing a 20% correction year-to-date.

There is no way to know what will trigger a Bitcoin bull run, but a report by Glassnode on April 18 has detected "a large amount of coin supply" accumulating between $38,000 and $45,000. For traders who believe BTC will reach $50,000 by July, there is a low-risk options strategy that can be used to cast a long bullish bet.

The skewed 'iron condor' has a limited downside

Following the whales and large investors usually pays off, but most traders are looking for ways to maximize gains while also limiting losses. For example, the skewed "iron condor" maximizes profits near $50,000 by July by limiting losses below $38,000.

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

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

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

The iron condor consists in selling both the call and put options at the same expiry price and date. The above example has been set using the BTC July 29 options.

The profit area lies between $40,500 and $60,500

To initiate the trade, the investor needs to short 1 contract of the $44,000 call option and another 1.4 contracts of the $44,000 put option. Then, the buyer needs to repeat the procedure for the $50,000 options, using the same expiry month.

To protect from an eventual downside, one should buy 3.46 contracts of the $38,000 put option. Lastly, one should buy 1.3 contracts of the $70,000 call option to limit losses above the level.

This strategy yields a net gain if Bitcoin trades between $40,500, 4% above the current $38,900 price, and $60,500 on July 29. Net profits peak at 0.33 BTC at $50,000, but remain above 0.21 BTC between $43,200 and $53,400.

Meanwhile, the maximum loss is 0.21 BTC in either extreme if, on July 29, Bitcoin price trades below $38,000 or above $70,000, both of which seem rather unlikely.

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The skewed 'iron condor' has a limited downside

The profit area lies between $40,500 and $60,500

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