Ethereum futures and options data reflects traders’ mixed emotions on $3.2K ETH price

January 11, 2022 Coin Telegraph

Ethereum futures and options data reflects traders’ mixed emotions on .2K ETH price

CBDC

ETH’s futures markets are slightly bearish, but options traders appear to be interpreting the rally to $3,200 as a bottoming signal.

Ether (ETH) has been an emotional rollercoaster over the past three months primarily because its price rallied twice. First, it peaked at $4,870 on Nov. 10 and at $4,780 on Dec. 1. However, the double top was quickly followed by a harsh rejection, which led to $490 million in long futures contract liquidations in 48 hours.

Once again, hope was instilled on Dec. 8 after Ether commenced to rally 28.5% in four days to retest the $4,400 support. Soon after, the downtrend continued, leading to the $2,900 bottom on Jan. 10, which was the lowest ETH price seen in 102 days. This low marked a 40% low from the $4,870 all-time high and caused traders to question whether a bear market had been set.

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

One might argue that Ether is simply following Bitcoin's 42% correction from the Nov. 10 all-time high at $69,000 and the most recent pullback has partially been attributed to the United States Federal Reserve's potential tighter monetary policies and Kazakhstan's political turmoil impact on mining.

This simplistic analysis leaves behind some crucial developments, such as China's official digital yuan wallet becoming the most downloaded app in local mobile app stores on Jan. 10. Furthermore, a pilot version of the nation’s central bank digital currency (CBDC) is being used in select cities and it also became available for download on app stores on Jan. 4.

Even with the fiscal policy pressure and negatively skewed price action, traders should still monitor the futures contracts premium (basis rate) to analyze how bullish or bearish professional traders are.

Futures traders are becoming more anxious

The basis indicator measures the difference between longer-term futures contracts and the current spot market levels. A 5% to 15% annualized premium is expected in healthy markets. This price gap is caused by sellers demanding more money to withhold settlement longer.

However, a red alert emerges whenever this indicator fades or turns negative, a scenario known as "backwardation."

*Ether 3-month futures basis rate. Source: Laevitas.ch*

Notice how the indicator peaked at 20% on Nov. 8 as Ether surpassed $4,800, but then gradually faded away to an 8% low on Dec. 5 after ETH flash crashed to $3,480. More recently as Ether touched a $2,900 low on Jan. 10, the basis rate moved to 7%, which is its lowest level in 132 days.

Consequently, professional Ether traders are not comfortable despite the 10% recovery to $3,200 on Jan. 11.

Options traders recently flipped neutral

To exclude externalities specific to the futures instrument, one should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The 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 causing the 25% delta skew indicator to shift to the negative area.

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

When market makers and whales are bearish, the 25% delta skew indicator shifts to the positive area, and readings between negative 8% and positive 8% are usually deemed neutral.

Ether option traders entered "fear" mode on Jan. 8 as the 25% delta skew surpassed the 8% threshold, peaking at 11% two days later. However, the quick bounce from the $2,900 low instilled confidence in Ether options traders and also moved the options "fear and greed" metric to a meager 3%.

At the moment, there is not a consensus sentiment-wise from Ether traders because futures markets indicate slight discontent and options arbitrage desks and whales have recently abandoned their bearish stance. This makes sense because the current $3,200 price is still reflecting the recent 15% weekly drop and is far from exciting.

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.

Ether drops below $3,800, but traders are unwilling to short at current levels

January 1, 2022 Coin Telegraph

Ether drops below ,800, but traders are unwilling to short at current levels

Coin Telegraph

Ethereum network saw a nine-fold increase in its smart contract deposits, but a descending channel continues to pressure the price.

Even though Ether (ETH) reached a $4,870 all-time high on Nov. 10, bulls have little reason to celebrate. The 290% gains year-to-date have been overshadowed by Dec.'s 18% price drop. Still, Ethereum's network value locked in smart contracts (TVL) increased nine-fold to $155 billion.

Looking at the past couple of months' price performance chart doesn't really tell the whole story, and Ether's current $450 billion market capitalization makes it one of the world's top 20 tradable assets, right behind the two-century-old Johnson & Johnson conglomerate.

2021 should be remembered by the decentralized exchanges' sheer growth, whose daily volume reached $3 billion, a 340% growth versus the last quarter of 2020. Still, crypto traders are notoriously short-sighted, accentuating the impact of the ongoing downtrend channel.

Derivatives markets do not reflect panic selling

To understand whether bearishness has been instilled, one must analyze the futures' funding rate. Perpetual contracts, also known as inverse swaps, have an embedded rate usually charged every eight hours. Those measures are established 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, and this causes the funding rate to turn negative.

*Ether perpetual futures 8-hour funding rate. Source: Coinglass.com*

As depicted above, the eight-hour fee has been ranging near zero in December, indicating a balanced leverage demand from buyers and sellers. Had there been some panic moments, it would have been reflected on such derivatives indicators.

Top traders are increasing their bullish bets

Exchange-provided data highlights traders' long-to-short net positioning. By analyzing every client's position on the spot, perpetual and futures contracts, one can better understand whether professional traders are leaning bullish or bearish.

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

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

Despite Ether's 9% correction since Dec. 24, top traders on Binance, Huobi and OKEx have increased their leverage longs. To be more precise, Binance was the only exchange facing a modest reduction in the top traders' long-to-short ratio. The figure moved from 0.98 to 0.92. However, this impact was more than compensated by OKEx traders increasing their bullish bets from 1.67 to 3.20 in one week.

Currently, there is hardly a sense of bearishness present in the market. According to the data, pro traders are buying the dip while retail investors' net demand for shorts (sell) hardly changed throughout the past month. Of course, none of that can predict whenever Ether will flip the current descending channel, but one might infer that there's little interest in betting on the downside from here.

5 ways derivatives could change the cryptocurrency sector in 2022

December 30, 2021 Coin Telegraph

BitMex

Retail and institutional investors love derivatives instruments. Here‘s how they could impact crypto markets in 2022.

We‘ve all heard stories of billion-dollar future contracts liquidations being the cause of 25% intraday price crashes in Bitcoin (BTC) and Ether (ETH) but the truth is, the industry has been plagued by 100x leverage instruments since BitMEX launched its perpetual futures contract in May 2016.

The derivatives industry goes far beyond these retail-driven instruments, as institutional clients, mutual funds, market makers and professional traders can benefit from using the instrument‘s hedging capabilities.

In April 2020, Renaissance Technologies, a $130 billion hedge fund, received the green light to invest in Bitcoin futures markets using instruments listed at the CME. These trading mammoths are nothing like retail crypto traders, instead they focus on arbitrage and non-directional risk exposure.

The short-term correlation to traditional markets could rise

As an asset class, cryptocurrencies are becoming a proxy for global macroeconomic risks, regardless of whether crypto investors like it or not. That is not exclusive to Bitcoin because most commodities instruments suffered from this correlation in 2021. Even if Bitcoin price decouples on a monthly basis, this short-term risk-on and risk-off strategy heavily impacts Bitcoin‘s price.

*Bitcoin/USD on FTX (blue, right) vs. U.S. 10-year yield (orange, left). Source: TradingView*

Notice how Bitcoin‘s price has been steadily correlated with the United States 10 year Treasury Bill. Whenever investors are demanding higher returns to hold these fixed income instruments, there are additional demands for crypto exposure.

Derivatives are essential in this case because most mutual funds cannot invest directly in cryptocurrencies, so using a regulated futures contract, such as the CME Bitcoin futures, provides them with access to the market.

Miners will use longer-term contracts as a hedge

Cryptocurrency traders fail to realize that a short-term price fluctuation is not meaningful to their investment, from a miners‘ perspective. As miners become more professional, their need to constantly sell those coins is significantly reduced. This is precisely why derivatives instruments were created in the first place.

For instance, a miner could sell a quarterly futures contract expiring in three months, effectively locking in the price for the period. Then, regardless of the price movements, the miner knows their returns beforehand from this moment on.

A similar outcome can be achieved by trading Bitcoin options contracts. For example, a miner can sell a $40,000 March 2022 call option, which will be enough to compensate if the BTC price drops to $43,000, or 16% below the current $51,100. In exchange, the miner‘s profits above the $43,000 threshold are cut by 42%, so the options instrument acts as insurance.

Bitcoin‘s use as collateral for traditional finance will expand

Fidelity Digital Assets and crypto borrowing and exchange platform Nexo recently announced a partnership that offers crypto lending services for institutional investors. The joint venture will allow Bitcoin-backed cash loans that can t be used in traditional finance markets.

That movement will likely ease the pressure of companies like Tesla and Block (previously Square) to keep adding Bitcoin to their balance sheets. Using it as collateral for their day-to-day operations vastly increases their exposure limits for this asset class.

At the same time, even companies that are not seeking directional exposure to Bitcoin and other cryptocurrencies might benefit from the industry‘s higher yields when compared to the traditional fixed income. Borrowing and lending are perfect use cases for institutional clients unwilling to have direct exposure to Bitcoin‘s volatility but, at the same time, seek higher returns on their assets.

Investors will use options markets to produce “fixed income”

Deribit derivatives exchange currently holds an 80% market share of the Bitcoin and Ether options markets. However, U.S. regulated options markets like the CME and FTX US Derivatives (previously LedgerX) will eventually gain traction.

Institutional traders dig these instruments because they offer the possibility to create semi “fixed income” strategies like covered calls, iron condors, bull call spread and others. In addition, by combining call (buy) and put (sell) options, traders can set an options trade with predefined max losses without the risk of being liquidated.

It‘s likely that central banks across the globe will worldwide keep interest rates near zero and below inflation levels. This means investors are forced to seek markets that offer higher returns, even if that means carrying some risk.

This is precisely why institutional investors will be entering crypto derivatives markets in 2022 and changing the industry as we currently know.

Reduced volatility is coming

As previously discussed, crypto derivatives are presently known for adding volatility whenever unexpected price swings happen. These forced liquidation orders reflect the futures instruments used for accessing excessive leverage, a situation typically caused by retail investors.

Yet, institutional investors will gain a broader representation in Bitcoin and Ether derivatives markets and, therefore, increase the bid and ask size for these instruments. Consequently, retail traders‘ $1 billion liquidations will have a smaller impact on the price.

In short, a growing number of professional players taking part in crypto derivatives will reduce the impact of extreme price fluctuations by absorbing that order flow. In time, this effect will be reflected in reduced volatility or, at least, avoid problems such as the March 2020 crash when BitMEX servers “went down” for 15 minutes.

Crypto regulation is coming, but Bitcoin traders are still buying the dip

December 20, 2021 Coin Telegraph

basis rate

The premium on CME Bitcoin futures dropped to zero, but data shows pro traders are still bullish.

Looking at the Bitcoin chart from a weekly or daily perspective presents a bearish outlook and it's clear that (BTC) price has been consistently making lower lows since hitting an all-time high at $69,000.

*Bitcoin/USD on FTX. Source: TradingView*

Curiously, the Nov. 10 price peak happened right as the United States announced that inflation has hit a 30-year high, but, the mood quickly reversed after fears related to China-based real estate developer Evergrande defaulting on its loans. This appears to have impacted the broader market structure.

Traders are still afraid of stablecoin regulation

This initial corrective phase was quickly followed by relentless pressure from regulators and policy makers on stablecoin issuers. First came VanEck's spot Bitcoin ETF rejection by the U.S. Securities and Exchange Commission on Nov. 12. The denial was directly related to the view that Tether’s (USDT) stablecoin was not solvent and concerns over Bitcoin's price manipulation.

On Dec. 14, the U.S. Banking, Housing and Urban Affairs Committee held a hearing on stablecoins focused on consumer protection and their risks and on Dec. 17, the U.S. Financial Stability Oversight Council (FSOC) voiced its concern over stablecoin adoption and other digital assets. "The Council recommends that state and federal regulators review available regulations and tools that could be applied to digital assets," said the report.

The worsening mood from investors was reflected in the CME's Bitcoin futures contracts premium. The metric measures the difference between longer-term futures contracts to the current spot price in regular markets.

Whenever this indicator fades or turns negative, this is an alarming red flag. This situation is also known as backwardation and indicates that bearish sentiment is present.

*Bitcoin CME 2-month forward contract premium versus Coinbase/USD. Source: TradingView*

These fixed-month contracts usually trade at a slight premium, indicating that sellers are requesting more money to withhold settlement for longer. Futures should trade at a 0.5% to 2% annualized premium in healthy markets, a situation known as contango.

Notice how the indicator moved below the “neutral” range after Dec. 9 as Bitcoin traded below $49,000. This shows that institutional traders are displaying a lack of confidence, although it is not yet a bearish structure.

Top traders are increasing their bullish bets

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

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

Despite Bitcoin's 19% correction since Dec. 3, top traders at Binance, Huobi, and OKEx have increased their leverage longs. To be more precise, Binance was the only exchange facing a modest reduction in the top traders' long-to-short ratio. The figure moved from 1.09 to 1.03. However, this impact was more than compensated by OKEx traders increasing their bullish bets from 1.51 to 2.91 in two weeks.

The lack of a premium in CME 2-month future contracts should not be considered a 'red alert' because Bitcoin is currently testing the $46,000 resistance, its lowest daily close since Oct. 1. Furthermore, top traders at derivatives exchanges have increased their longs despite the price drop.

Regulatory pressure probably won’t lift up in the short term, but at the same time, there's not much that the U.S. government can do to suppress stablecoin issuance and transactions. These companies can move outside of the U.S. and operate using dollar-denominated bonds and assets instead of cash. For this reason, currently, there is hardly a sense of panic present in the market and from data shows, pro traders are buying the dip.

Here’s why Ethereum traders could care less about ETH’s current weakness

December 18, 2021 Coin Telegraph

basis

ETH price could hit new lows near $3,600, but derivatives data suggests pro traders still feel bullish.

Since hitting an all-time high at $4,870 on Nov. 10, Ether (ETH) price has been posting lower lows over the past 50 days. If this downtrend continues, the lower trendline support suggests that the altcoin will bottom at $3,600. Still, derivatives data is signaling that pro traders are not concerned about the seemingly bearish market structure.

Ether/USD price on FTX. Source: TradingView

Notice how the price peaks are getting lower on the 12-hour time frame as mounting regulatory concerns drive investors away from the sector. In a press conference on Dec. 17, Russia's Central Bank governor, Elvira Nabiullina, stated that banning crypto in the country is "quite doable."

Nabiullina cited crypto's frequent use for illegal operations and significant risks for retail investors. Russian President Vladimir Putin also recently criticized cryptocurrency by saying they are not backed by anything. Interestingly, the country plans to launch its own central bank digital currency even as the Russian ruble lost 44% against gold over the past four years.

In the United States, a bipartisan group of U.S. senators has called on Treasury Secretary Janet Yellen to clarify the language in the infrastructure bill relating to the crypto tax reporting requirements. Under the current broader "broker" definition, miners, software developers, transaction validators and node operators will likely be required to report digital asset transactions worth more than $10,000 to the Internal Revenue Service.

Even with the regulatory uncertainty and negatively skewed price action, traders should monitor the futures contracts premium — also known as the "basis rate" — to analyze how bullish or bearish professional traders are.

Pro traders are neutral despite the price weakness

However, a red alert emerges whenever this indicator fades or turns negative, also known as "backwardation."

Notice how the sharp decrease after the 24% intraday crash on Dec. 3 caused the annualized futures premium to reach its lowest level in two months. After the initial panic, the Ether futures market recovered to the current 9% level, which is close to the middle of the "neutral" range.

To confirm whether this movement was specific to that instrument, traders should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The indicator will turn positive when "fear" is prevalent because the protective put options premium is higher than similar risk call options.

When market makers are bullish, the 25% delta skew indicator shifts to the negative area, and readings between negative 8% and positive 8% are usually deemed neutral.

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

For the past three weeks, the 25% delta skew ranged between a positive 3 and 8 which is in the neutral zone. Consequently, options market data validate the sentiment seen in futures markets and signals that whales and market makers are not worried about the recent price weakness.

If investors "zoom-out" a bit, they will see that Ether's year-to-date gains are at 300%, and this explains why pro traders are not worried about a 20% drop from the $4,870 all-time high.

Furthermore, the Ethereum network's total value locked in smart contracts doubled over the past six months to $148 billion. This data gives derivatives traders the confidence needed to remain calm even with the current short-term price weakness.

Crypto derivatives can foresee price action but need institutional buzz to truly shine

December 17, 2021 Coin Telegraph

Bitcoin Price

The crypto derivatives market plays an important role in price discovery, but institutional investors are needed to add depth.

The cryptocurrency market has been under a period of duress, with a majority of the tokens in the cryptoverse witnessing a price slump that has set in since the first week of December. The flagship cryptocurrency token, Bitcoin (BTC), underwent a flash crash on Dec. 4, wherein the price of the token fell below $50,000 in nearly two months, as per data from Cointelegraph Markets Pro.

This phenomenon was witnessed among the majority of the cryptocurrency tokens as the market was gradually painted in red. Ethereum and Ether (ETH) came to be the network and token of choice for a majority of decentralized finance (DeFi) protocols as Ether witnessed a 19% price drop.

However, BTC and ETH also have a healthy futures and options market that could’ve played an important role in foreseeing this ongoing price slump for these tokens.

Coinindicing with the price crash on Dec. 4, $950 million worth of BTC options expired, wherein bears had the advantage over the bulls even at the time when the price was trading at $57,000. The options data leading up to this expiry suggested that it was skewed toward the market forces being bearish due to a high proportion of put options below the $57,000 mark. A put option is a contract that gives the holder of the option the right (but not the obligation) to sell a predefined amount of the underlying asset at a predetermined price.

A call option is one in which the option holder has the right to buy the underlying assets under similar conditions. The proportion of put options in comparison with the call options leading up to an options expiry is highly indicative of the sentiment that prevails in the market for the underlying asset. In this case, there was a clear indication that markets were heavily bearish even a week before the expiry and the price flash that went hand in hand.

The forces in play

Luuk Strijers, the chief commercial officer of crypto derivatives exchange Deribit, spoke to Cointelegraph about the signs in the derivatives data that gave an inkling about the incoming crash:

“Prior to the weekend correction, we saw a spike in IVs possibly related to post-expiry related selling. There seemed to be some uncertainty in the market, and we saw Risk-reversal strategies being traded (Sell OTM Call + Buy OTM Put).”

Since the expiration date for an option is the last date on which the option holder can either decide to exercise the option of either executing the buy or sell order of the underlying asset or the holder deciding to forfeit the option and let it expire becoming worthless, expiries often become significant events that impact the price dynamics of the underlying asset, in this case, Bitcoin.

Strijers opined on the impact of this particular expiry on BTC, saying: “Difficult to tell for certain. However, more and more people watch the expiry and open interest levels at certain key strikes which amplifies the relevance of the larger expiries.”

Adam James, senior analyst at OKEx Insights, the research arm of crypto exchange OKEx, spoke with Cointelegraph about signs leading up to this crash: “The most obvious signs that a crash may be impending were the extremely high open interest and positive funding. Those two things don’t generally bode well and often require a flush.” He added further:

“The cascading sell-off we saw on Saturday was just that flush — thin weekend order books made it easy to steamroll overleveraged longs and cause something of an OI reset. As it happened, the crash was one of the largest capitulating events in BTC's history.”

Despite this phenomenon being an indication that the price of the underlying assets and the derivatives markets are closely related, the size of the markets is still only a blip on the size of the spot markets.

Institutional investors could be the game-changer

Considering the derivatives markets that exist for the top two cryptocurrency tokens, BTC and ETH — though with significant growth in open interest — it is a very small percentage of the spot markets and its current market capitalization for their assets.

The open interest (OI) for BTC options has grown more than tenfold from nearly $1 billion on July 1 to stand at around $11.4 billion at the time of writing. The OI hit an all-time high of $15.72 billion on Oct. 20. Soon after, BTC hit an all-time high of $68,789.63 on Nov. 10.

Considering that the total market capitalization of BTC in the spot markets in the same duration was over $1 trillion, it is highly evident that cryptocurrency options are only in their nascent stages and, even still, play a vital role in the price discovery and forecasting abilities for the asset. A similar phenomenon is observed when taking a closer look at the OI data for ETH too.

Cointelegraph discussed the size of the crypto options markets with Igneus Terrenus, head of communications at cryptocurrency derivatives exchange Bybit: “When you compare it either to the options market in the commodities space or what Robinhood offers for stocks, what is currently available in the crypto options market seems to be inadequate for both institutional and retail traders.”

Institutional investors could be the game-changer to enable drastic change in the crypto derivatives market by exponentially increasing the size, liquidity and depth of these markets. Goldman Sachs, the investment banking giant that revived its defunct cryptocurrency trading desk amid this bull run, predicted that the cryptocurrency options market could be seen as the next frontier for institutional adoption of crypto. The wall street bank themselves announced plans to expand their crypto trading desk to engage with BTC and ETH derivatives products as well.

However, Strijers explained that institutional investors coming into the crypto derivatives market is a slow-moving process, especially due to Know Your Customer (KYC) and due diligence processes. He said, “In November, we have onboarded more institutional clients than any month before — the larger the firm, the longer the mutual onboarding process.” He went on to add:

“Now, those large clients have an extensive platform and a due diligence procedure as well, especially the ones offering third party asset management in some form, like the multi-billion dollar macro funds, for example.”

Other Altcoins play catch up

Currently, there is a liquid options market that exists only for BTC and ETH on various cryptocurrency exchanges like Deribit, LedgerX, OKEx, FTX and even the Chicago Mercantile Exchange (CME), the largest derivatives exchange in the world for traditional asset classes.

However, there are no options products available for other prominent cryptocurrency tokens like XRP (XRP), Solana (SOL), Binance Coin (BNB), Polkadot (DOT), and many others, even though these tokens have a highly liquid spot market and even a futures market.

Strijers explained further the reasoning behind this existing scenario: “We plan to make SOL products available soon. Beyond that, it remains to be seen as we require proper market maker coverage at all times, including, for example, Sunday evening and other times, in all strikes and expiries. We can’t rely on a handful of market makers, but need many more.”

Nonetheless, there is also a liquid futures market that is available for several of the top cryptocurrencies, even including the meme coin Dogecoin (DOGE) and the native token of the nonfungible token (NFT) game Axie Infinity (AXS). Even still, the OI of the futures-based products of these tokens hasn’t even touched $1 billion despite the market concluding one of the longest bull runs that the ecosystem has ever witnessed.

The token, apart from BTC and ETH, that has the highest OI for its futures is SOL, standing at nearly $870 million at the time of writing. Next in the ranks is DOT, with an OI of $573 million, followed by BNB with an OI of $521 million.

Considering that all of these altcoins have a spot market capitalization of over $50 billion, the futures market for these tokens is currently only a small proportion of their total market capitalization. This indicates that even though there is a liquid futures market for these assets, its size is very small to have a significant impact on price, although they do play a role in price discovery of the underlying token.

As institutional and retail adoption of cryptocurrencies is seen to be growing by leaps and bounds in the past year, their involvement on the derivatives side of the market will also increase over time, especially once institutional giants like Grayscale jump to the fore and get heavily involved in this market pushing market and pricing efficiencies for these assets.

This simple Bitcoin options strategy lets traders profit while also hedging their bets

December 1, 2021 Coin Telegraph

BTC Options

Not sure which way BTC price might go? Here’s how pro traders use the Iron Condor options strategy to place carefully hedged bets.

For traders who are undecided on Bitcoin's (BTC) move, the "long condor with call options" yields optimal results with very low risk. This strategy offers protection down to $53,500, which would be a 7% downside move from the current $57,600, and returns a positive outcome up to $67,500.

Options markets provide more flexibility to develop custom strategies. Unlike futures, there are two separate instruments available. The call option gives the buyer upside price protection, while the protective put option offers the opposite.

*Bitcoin options strategy returns. Source: Deribit Position Builder*

This long condor strategy has been set for the Dec. 31 expiry and uses a slightly bullish range. The same basic structure can also be applied for other periods or price ranges, although the contract quantities might need some adjustment.

Bitcoin was trading at $57,600 when the pricing took place, but a similar result can be achieved starting from any price level. The minimum contract size depends on the derivatives exchange, but one needs to keep the suggested ratio to hold the overall strategy structure.

The first trade requires buying 0.54 contracts of the $52,000 call options to create positive exposure above this price level. Then, to limit gains above $56,000, the trader needs to sell 0.50 BTC call option contracts.

To further limit gains above $64,000, another 0.45 call option contracts should be sold. To complete the strategy, the trader needs upside protection above $70,000 by buying 0.41 call option contracts if the Bitcoin price skyrockets.

The 1.50 to 1 risk-reward ratio is moderately bullish

The strategy might sound complicated to execute, but the margin required is only 0.0152 BTC, which is also the max loss. Traders should remember that it is also possible to close the position ahead of the Dec. 31 expiry if there's enough liquidity.

The max net gain occurs between $56,000 and $64,000 at 0.0233 BTC, which is 50% higher than the potential loss. With 30 days until the expiry date, this strategy gives the holder peace of mind because unlike futures trading, there is no liquidation risk.

Furthermore, having a profit range that varies from a 7% downside move to a positive 17% price change seems conservative and covers a decent $14,000 price range.

Crypto.com to acquire two US exchanges for derivatives and futures offerings

December 1, 2021 Coin Telegraph

Coin Telegraph

Crypto.com aims to offer derivatives and futures products to its U.S. customers with the acquisition of Nadex and the Small Exchange.

Global crypto exchange Crypto.com is looking to strengthen its foothold in the United States with the acquisition of IG Group's stakes in two exchange platforms.

Crypto.com announced that it is purchasing the U.S.-regulated North American Derivatives Exchange (Nadex) and the Small Exchange for a reported $216 million. The deal is expected to close in the first half of 2022, following regulatory approval.

Both based in Chicago, Nadex offers retail investors derivative products while the Small Exchange is known for its futures offerings, enabling Crypto.com to provide traditional instruments to its U.S. customers. Crypto.com co-founder and CEO Kris Marszalek said that the goal is to offer customers a trusted, secure and regulated platform to achieve financial independence.

Regulated by the Commodity Futures Trading Commission (CFTC), Nadex offers binary options, call spreads and Touch Bracket (“knock-out”) contracts, according to the announcement. The Small Exchange, on the other hand, provides futures products that are smaller, more capital efficient in a bid to attract first-timers.

According to the announcement, Travis McGhee and Donald Roberts will continue in their roles as CEOs of Nadex and the Small Exchange, respectively.

The acquisition adds to Crypto.com’s spending spree to make a name in the U.S. The company recently made headlines with its $700 million deal with AEG to buy the naming rights of Staples Center, the home of the NBA’s Los Angeles Clippers and Los Angeles Lakers, for 20 years.

Crypto.com is also working on streamlining its fiat deposit and withdrawal processes. Following its integration with Circle API to enable U.S. dollar bank transfers to Circle-based USD Coin (USDC) wallets, the exchange has partnered with state-chartered Silvergate Bank to allow dollar deposits and withdrawals for its institutional clients.

Wen moon? Data shows pro traders becoming more bullish on Bitcoin price

November 30, 2021 Coin Telegraph

basis

MicroStrategy’s purchase of 7,002 BTC might have helped boost Bitcoin price today, but derivatives data also shows that pro traders are becoming more bullish.

The $4,700 Bitcoin (BTC) price spike on Nov. 29 was likely a great relief for holders, but it seems premature to call the bottom according to derivative metrics.

This should not come as a surprise because Bitcoin price is still 15% below the $69,000 all-time high set on Nov. 10. Just 15 days later, the cryptocurrency was testing the $53,500 support after an abrupt 22% correction.

Today’s trend reversal was possibly encouraged by MicroStrategy’s announcement that it had acquired 7,002 Bitcoin on Monday at an average price of $59,187 per coin. The listed company raised money by selling 571,001 shares between Oct. 1 and Nov. 29, raising a total of $414.4 million in cash.

More bullish news came after German stock market operator Deutsche Boerse announced the listing of the Invesco Physical Bitcoin exchange-traded note or ETN. The new product will trade under the ticker BTIC on Deutsche Boerse's Xetra digital stock exchange.

Data shows pro traders are still neutral-to-bullish

To understand how bullish or bearish professional traders are positioned, one should analyze the futures basis rate. That indicator is also known as the futures premium, and it measures the difference between futures contracts and the current spot market at regular exchanges.

Bitcoin’s quarterly futures are the preferred instruments of whales and arbitrage desks. Even though derivatives might seem complicated for retail traders due to their settlement date and price difference from spot markets, the most notorious benefit is the lack of a fluctuating funding rate.

*Bitcoin 3-month futures basis rate. Source: Laevitas.ch*

The three-month futures typically trade with a 5%–15% annualized premium, which is deemed an opportunity cost for arbitrage trading. By postponing settlement, sellers demand a higher price and this causes the price difference.

Notice the 9% bottom on Nov. 27, as Bitcoin tested the $56,500 support. Then, after Monday’s rally above $58,000, the indicator shifted back to a healthy 12%. Even with this movement, there is no sign of excitement, but none of the past few weeks could be described as a bearish period.

Lending markets provide additional insight

Margin trading allows investors to borrow cryptocurrency to leverage their trading position, therefore increasing the returns. For example, one can buy Bitcoin by borrowing Tether (USDT), thus increasing the exposure. On the other hand, borrowing Bitcoin can only be used to short it or bet on the price decrease.

Unlike futures contracts, the balance between margin longs and shorts isn’t necessarily matched.

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

When the margin lending ratio is high, it indicates that the market is bullish—the opposite, a low lending ratio signals that the market is bearish.

The chart above shows that traders have been borrowing more Bitcoin recently, because the ratio decreased from 21.9 on Nov. 26 to the current 11.3. However, the data leans bullish in absolute terms because the indicator favors stablecoin borrowing by a wide margin.

Derivatives data shows zero excitement from pro traders even as Bitcoin gained 9% from the $53,400 low on Nov. 28. Unlike retail traders, these experienced whales avoid FOMO, although the margin lending indicator shows signs of excessive optimism.

3 reasons why Bitcoin’s drop to $56.5K may have been the local bottom

November 20, 2021 Coin Telegraph

3 reasons why Bitcoin’s drop to .5K may have been the local bottom

bitcoin options

The absence of cascading liquidations, 25% delta skew and the margin lending ratio all suggest that Bitcoin price bottomed at $56,500.

The first rule of Bitcoin (BTC) trading should be “expect the unexpected.” In just the past year alone, there have been five instances of 20% or higher daily gains, as well as five intraday 18% drawdowns. Truth to be told, the volatility of the past 3-months has been relatively modest compared to recent peaks.

*Bitcoin historical 90-day annualized volatility. Source: TradingView*

Whether it be multi-million dollar institutional fund managers or retail investors, traders new to Bitcoin are often mesmerized by a 19% correction after a local top. Even more shocking to many is the fact that the current $13,360 correction from the Nov. 10 $69,000 all-time high took place over nine days.

The downside move did not trigger alarming-raising liquidations

Cryptocurrency traders are notoriously known for high-leverage trading and in just the past 4 days nearly $600 million worth of long (buy) Bitcoin futures contracts were liquidated. That might sound like a decent enough number, but it represents less than 2% of the total BTC futures markets.

*Bitcoin futures aggregate open interest. Source: Coinglass.com*

The first evidence that the 19% drop down to $56,000 marked a local bottom is the lack of a significant liquidation event despite the sharp price move. Had there been excessive buyers' leverage at play, a sign of an unhealthy market, the open interest would have shown an abrupt change, similar to the one seen on Sept. 7.

The options markets’ risk gauge remained calm

To determine how worried professional traders are, investors should analyze the 25% delta skew. This indicator provides a reliable view into "fear and greed" sentiment by comparing similar call (buy) and put (sell) options side by side.

This metric will turn positive when the neutral-to-bearish put options premium is higher than similar-risk call options. This situation is usually considered a "fear" scenario. The opposite trend signals bullishness or "greed."

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

Values between negative 7% and positive 7% are deemed neutral, so nothing out of the ordinary happened during the recent $56,000 support test. This indicator would have spiked above 10% had pro traders and arbitrage traders detected higher risks of a market collapse.

Margin traders are still going long

Margin trading allows investors to borrow cryptocurrency to leverage their trading position, therefore increasing the returns. For example, one can buy cryptocurrencies by borrowing Tether (USDT) and increasing their exposure. On the other hand, Bitcoin borrowers can only short it as they bet on the price decrease.

Unlike futures contracts, the balance between margin longs and shorts isn't always matched.

The above chart shows that traders have been borrowing more USDT recently, as the ratio increased from 7 on Nov. 10 to the current 13. The data leans bullish because the indicator favors stablecoin borrowing by 13 times, so this could be reflecting their positive exposure to Bitcoin price.

All of the above indicators show resilience in the face of the recent BTC price drop. As previously mentioned, anything can happen in crypto, but derivatives data hints that $56,000 was the local bottom.

derivatives

Futures traders are becoming more anxious

Options traders recently flipped neutral

Derivatives markets do not reflect panic selling

Top traders are increasing their bullish bets

The short-term correlation to traditional markets could rise

Miners will use longer-term contracts as a hedge

Bitcoin‘s use as collateral for traditional finance will expand

Investors will use options markets to produce “fixed income”

Reduced volatility is coming

Traders are still afraid of stablecoin regulation

Top traders are increasing their bullish bets

Pro traders are neutral despite the price weakness

The forces in play

Institutional investors could be the game-changer

Other Altcoins play catch up

The 1.50 to 1 risk-reward ratio is moderately bullish

Data shows pro traders are still neutral-to-bullish

Lending markets provide additional insight

The downside move did not trigger alarming-raising liquidations

The options markets’ risk gauge remained calm

Margin traders are still going long

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