Key Bitcoin price metric flashes its first bullish signal in 4 months

April 29, 2021 Coin Telegraph

BTC price

Ethereum price is clearly in a strong bull trend, but derivatives data signals that pro traders are shifting their bullish bias back toward Bitcoin.

Bitcoin (BTC) has been struggling to sustain above the $53,000 support for the past three days, while Ether (ETH) soared to a new all-time high at $2,800. In the current scenario, some traders would rather wait for Friday's CME futures expiry before entering long BTC positions, as historically, its price tends to correct ahead of the event.

*Ether and Bitcoin prices at Coinbase, USD. Source: TradingView*

On the other hand, Ether's price has been positively impacted by the European Investment Bank launching a "digital bond" sale using the Ethereum network. The EIB is issuing a two-year 100-million-euro ($120.8 million) digital bond, with the deal to be led by Goldman Sachs, Santander, and Societe Generale.

Furthermore, in the past week, JP Morgan published a research note stating that Ether should continue to outperform Bitcoin due to liquidity improvements and increased activity on the network.

According to fixed-income analyst Joshua Younger:

"Bitcoin is more of a crypto commodity than currency and competes with gold as a store of value, whereas Ether is the backbone of the crypto-native economy and therefore functions more as a medium of exchange. To the extent owning a share of this potential activity is more valuable."

When analyzing the ratio between users' net long-to-short ratio at OKEx, surprising data emerges. The indicator is calculated using clients' consolidated positions, including perpetual and futures contracts. The proportion of Ether longs versus the shorts reached the lowest level in 2021, becoming significantly lower than Bitcoin's.

*OKEx futures long-to-short ratio. Source: OKEx*

Ether longs vastly dominated throughout 2021, peaking at 130% larger than shorts, while Bitcoin traders have been usually more modest. However, the April 29 market trend reversal comes as the ratio for BTC longs stands 45% higher than shorts.

Meanwhile, Ether traders are only 6% net long, signaling a lack of confidence in the recent rally.

One should not interpret the stance of OKEx traders' positioning in Ether as bearish, considering that the long-to-short ratio is relatively flat. However, April's monthly trend leaves no doubt that Bitcoin traders are becoming more optimistic.

Traders should not dismiss Friday's BTC and Ether options expiry. The $3.9 billion Bitcoin expiry presents a danger to bulls if the price happens to move below $50,000, considering the neutral-to-bearish put options would then have a $700 million advantage.

Currently, bulls dominate Ether's more modest $930 million options expiry, and the $115 million difference in call options open interest seems guaranteed even if Ether's price drops to $2,600.

However, both cryptocurrencies could experience volatility after Friday's 8:00 AM UTC options expiry and the following CME futures and options expiry at 3:00 PM UTC.

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 price stalls in April, but $4.2B options expiry may revive run

April 29, 2021 Coin Telegraph

Bitcoin

As over $4 billion in BTC options contracts stand to expire, most options traders will feel “max pain,” while options writers could gain.

What’s interesting about this particular options expiry is that the current max pain price for the expiry is $54,000, which is very close to the current trading price. The max pain price is the price at which most options are rendered worthless, thus leading to the loss of the option premium for the options holders. Although, in this situation, options writers stand to gain.

On April 29, over $4.2 billion worth of Bitcoin (BTC) options contracts will expire. This expiry comes after Bitcoin has seen a recovery from $48,000 to currently trade in the $54,000 range. The total open interest of Bitcoin options currently stands at $13.54 billion, with over 88% being on Deribit, the largest crypto derivatives exchange by both volume and market capitalization.

Cointelegraph discussed this with Robbie Liu, market analyst at OKEx Insights — the research team at cryptocurrency exchange OKEx. He stated that “A huge expiry alone does not indicate that the market is bullish or bearish, but it did restrain the price upswing when the previous quarterly options expired at the end of March. And after the delivery, the downward pressure was reduced.”

In fact, when looking at the max pain curve, it’s evident that it’s reasonably flat at the bottom. This means that the overall economic impact of an expiry at $48,000 is relatively comparable to that of an expiry at $62,000. Shaun Fernando, head of risk and product strategy at Deribit, told Cointelegraph: “On expiry, with the removal of the max pain point, this could lead to an easier deviation from the 54k level.”

According to data from CoinOptionsTrack, the put-call ratio for the expiry is 0.69. The put-call ratio describes the trading volumes of put options in relation to those of call options. A put option buyer has the right to sell the underlying asset at a predetermined price on a specified date, while a call option holder has the right to buy an asset at a predetermined price on a specified date. The put-call ratio is often used as an indicator of the sentiment that prevails in the market. If the value is above 1, it is looked at as an indicator to sell, while a value below 1 is seen as an opportunity to buy. Regarding the implications of the max pain theory in this expiry, Liu further elaborated:

“The current max pain price of the April 30 expired options is at $54,000, but it’s skewed by the impossible to reach $80,000 calls, which have the largest open interest at the moment. Market participants are currently more concerned about whether the large amount of puts located at $52,000 and $51,000 will expire with no value.”

Options expiry impact noticeable

While monthly options expiry dates are often significant events for their underlying assets due to the large size of the expiries, an expiry in and of itself is not a rare occurrence. There are multiple options with different expiry dates offered by various exchanges. For instance, the expiry on April 23 caused 27,000 BTC in options to expire. At the current price, this expiry was worth $1.45 billion. A large portion of this was about 2,500 put options at a strike price of $50,000, while the max pain price was at $58,000.

Liu explained that the impact of the April 23 expiry was seen directly in the price of Bitcoin: “Bitcoin experienced a lot of selling pressure last Friday and the price managed to get pushed below $50,000 at the time of option settlement, at 4pm HKT [8:00 am UTC]. Then it saw a rebound after that. We can’t know yet if the same scenario is going to repeat itself.”

While this impact is often evident in the short term, some investors believe it might be an overrated angle for analysis. Scott Melker, a crypto trader and analyst, told Cointelegraph:

“There’s been much debate about the effect of BTC options expirations and their effect on the market. Options are a fraction of the total market and are rationally unlikely to affect spot price dramatically, but that has not stopped traders and investors from waxing poetic about price suppression and ‘max pain’ into the expiration week at the end of each month.”

Ki Young Ju, CEO of crypto analytics firm CryptoQuant, told Cointelegraph: “Bitcoin’s options market is still relatively small for the expiry to have a sizable impact on the spot price.”

As the debate continues over the impact of the Bitcoin options market on the price of BTC in the long term, analyzing the price trends of the underlying asset shows an interesting aspect.

April price trend is lower than usual

Even though Bitcoin hit its all-time high of $64,900 on April 21, it saw a 27% drop almost immediately as its price fell as low as the $46,000 range. The flagship cryptocurrency has been recovering from this slump ever since. Considering only the trend in April, there has been a 5% loss in BTC’s price — which was not expected, considering its April returns over the past four years. Barring any dramatic price movements on April 30, this will be the first time in six years that BTC ends the month of April in the red.

Lui opined on this, saying: “Bitcoin has averaged a 30% return in April over the past four years. But the market leader returned much more in the first quarter of this year than in previous years. It’s not bad for Bitcoin to take a pause in April after the previous parabolic run.” Fernando further elaborated, referring to BTC’s gains during quarter one:

“Historically March would see large falls. Since that wasn’t the case this year, we can expect April to also break from convention. Also, it did not help this month with [United States President] Biden’s proposed higher capital-gains tax rates plans.”

However, the one-year gains for BTC currently stand at 604%, which is unprecedented, thus showing that 2021 has to date been an outstanding year for the asset. This mostly due to the rising attention given to Bitcoin and other top cryptocurrencies by both retail investors and institutional investors.

April has been no different in terms of continued institutional adoption of the asset. On April 21, Japanese gaming giant Nexus became the latest large corporation to invest in Bitcoin. It announced that it made a purchase of 1,717 BTC at a price of $58,226, which equates to a roughly $100 million investment.

The quarter-one earnings release for Tesla revealed that it booked a $101 million profit from the sale of BTC. While most perceived this as a positive development that showed the potential profits and liquidity of Bitcoin, some skeptics saw this as a sell-off and a broader call to sell Bitcoin. Tesla CEO Elon Musk was quick to point out that “Tesla sold 10% of its holdings essentially to prove liquidity of Bitcoin as an alternative to holding cash on balance sheet” and that he has personally not sold any of his Bitcoin.

Whales be whales?

One way to gauge institutional moves is through outflows from crypto exchange Coinbase Pro. The exchange normally integrates its custody wallets with its over-the-counter desks, which institutions usually trade through to minimize the impact on the spot markets. The outflows are seen as a representation of institutional activity in the BTC market.

According to CryptoQuant’s “BTC: Coinbase Pro Outflow” tracker, there were four significant outflows from Coinbase in April. It’s possible that this BTC went to Coinbase custody wallets for OTC deals.

Ju further elaborated: “Institutions like Tesla use Coinbase Prime brokerage to buy or sell BTC. It would be bulk orders that can affect BTC price. Coinbase premium has been negative/neutral for the past 7 weeks, but it turned positive lately, hitting an all-time high a week ago.”

The Coinbase premium gap measures the difference in the price of BTC on Coinbase Pro and Binance. The larger the gap — and the higher the premium — the stronger the spot buying pressure on Coinbase.

As Bitcoin continues to recover from its April mid-month slump, it’s evident that institutional interest in the asset is still on the rise despite the price volatility it has seen recently. While the upcoming $4.2 billion options expiry might not lead to much of an economic impact for options holders, it is highly likely that after the options expiry, the downward pressure on BTC will move away from the current max pain price of $54,000.

Sub-$60K monthly close will make Bitcoin’s $3.9B options expiry a non-event

April 28, 2021 Coin Telegraph

Bitcoin

Bitcoin options traders hoped for a $60,000 monthly close, but the balance between calls and puts signal the expiry will be a non-event.

Bitcoin's (BTC) 2021 performance has been impressive, but traders waiting for a record-breaking monthly candle are likely to be disappointed this week.

After peaking at $64,900 on April 14, a jaw-breaking 27% correction followed, causing BTC price to drop to the $46,000 level.

This downside move obliterated more than $9 billion long BTC futures contracts in a swift action that was previously unthinkable to most investors.

Even though the Bitcoin price recovered $5,800 over the past 48-hours, in the options markets, the bulls were not able to take the bears by surprise as both sides are virtually balanced for April 30 expiry.

*Bitcoin (BTC) USD price at Coinbase. Source: TradingView*

The total Bitcoin futures open interest just three months earlier was $11 billion, although this record-high took place on April 13 at $27.7 billion. Nevertheless, this shows how meaningful the recent price correction impact was.

Meanwhile, options markets operate on a different basis as the contract buyer pays the premium upfront. Therefore, there is no forceful liquidation risk for the holder. While the call (buy) option provides its buyer upside price protection, the put option does the opposite.

Therefore, those seeking neutral-to-bearish strategies will rely primarily on put options. On the other hand, call options are more commonly used for bullish traders.

Although some exchanges offer weekly options contracts, the monthly ones usually draw larger volumes. April will be no different, with 72,000 BTC option contracts worth $3.9 billion at the current $54,500 price are set to expire.

*Aggregate BTC options open interest by expiry. Source: Bybt*

Take notice of how dominant April's options are as opposed to May or September. While the neutral-to-bullish call options dominate with 41% larger open interest for April 30, a more detailed analysis is needed to interpret this data.

It is worth noting that not every option will trade at expiry, as some of those strikes now sound unreasonable, especially considering there are less than two days left.

Ultra bullish options are now worthless

To understand how these competing forces are balanced, one should compare the calls and put options size at each expiry price (strike).

*April 30 aggregate BTC options open interest. Source: Bybt*

Although these $80,000 to $120,000 call (buy) options might seem outrageous, they are typically used for 'calendar spread' strategies. As previously explained by Cointelegraph, the buyer might profit even if BTC trades well below those strikes.

The ultra-bullish options are now effectively worthless because there is no benefit from gaining the right to acquire BTC for $80,000 on the April 30 expiry. The same could be said for the neutral-to-bearish put options at $48,000 and lower.

Therefore, it is better to assess traders' positioning by excluding these unrealistic strikes.

$54,500 presents a balanced situation

The neutral-to-bullish call options up to $58,000 amount to 9,950 BTC contracts. These are equivalent to $540 million in open interest at the current Bitcoin price. Another 3,100 would enter the scene at $60,000 and higher, generating a $780 million option expiry.

On the other hand, the more bearish put options down to $51,000 total 12,000 BTC contracts, currently worth $650 million in open interest.

If the Bitcoin price manages to plunge below $50,000, another 3,850 put options would also be exercised. This figure represents a potential $700 million open interest for the more bearish options.

At the moment, both calls and puts appear virtually balanced. Considering that a $100 million to $150 million difference is likely not enough to incentivize either side to pressure the price, thus this monthly expiry may be 'uneventful.'

The futures and options expiry at Deribit, OKEx, and Bit.com takes place on April 30 at 8:00 AM UTC. The CME futures and options happen at 3:00 PM UTC.

Tim Draper-backed crypto derivatives exchange raises $18M

April 28, 2021 Coin Telegraph

Tim Draper-backed crypto derivatives exchange raises M

Coin Telegraph

Globe Derivative Exchange prepares to launch its platform next month by raising $18 million for a token sale.

A new global cryptocurrency derivatives exchange, Globe Derivative Exchange — or GlobeDX — continued its preparation for the platform's launch by securing another major raise.

GlobeDX announced Wednesday that the firm successfully raised $18 million through a new funding round featuring investors like seed money startup accelerator Y Combinator and Tim Draper’s Draper Dragon fund. Other investors included crypto exchange OKEx, Pantera Capital, Republic Crypto, CMT Digital and Wave Financial.

Scheduled for launch in early May, GlobeDX will allow users to trade major cryptocurrencies like Bitcoin (BTC) and Ether (ETH), as well as decentralized finance tokens with up to 100x leverage via perpetual futures contracts. Built by Y Combinator alumni Shaun Ng and James West, the platform has already enabled users to open Globe accounts and trade with Testnet Bitcoin.

“We’re working closely with our investors and strategic partners to bring innovative products for our traders on Globe. Trading DeFi perpetuals on an exchange built by trad-fi veterans will be a whole new experience for crypto traders,” GlobeDX CEO West said.

The latest funding round adds to a $3 million seed round completed by GlobeDX in November 2020. A spokesperson for GlobeDX told Cointelegraph that the previous funding round was an equity raise, while the latest $18 million funding will contribute to its upcoming token sale involving the Globe Derivatives Token (GDT). GlobeDX’s native GDT serves multiple purposes including trading fee discounts, staking rewards and others.

“The Globe team has been building quietly and we think now’s the perfect time for them, with incumbents like BitMEX facing new challenges and DeFi catching the attention of sophisticated market players,” Pantera Capital’s Franklin Bi said.

Bulls push Ethereum price higher ahead of Friday’s $930M options expiry

April 27, 2021 Coin Telegraph

Bulls push Ethereum price higher ahead of Friday’s 0M options expiry

Coin Telegraph

Bulls have a $115 million lead on Friday's $930 million Ethereum options expiry, a signal that ETH could be en route to new all-time highs.

The last couple of weeks have been nothing short of a roller coaster for Ether (ETH), which oscillated between $2,000 and a record-high $2,650. The 20% crash on April 17 caused a $1 billion liquidation on long futures contracts, and it also drastically reduced investors' appetite for risk.

*Ether (ETH) USD price at Coinbase. Source: TradingView*

However, as displayed above, the 28% gain over the last couple of days caused the open interest on Ether futures to reach $8.2 billion, which is just 5% below its April 15 record. A similar event took place in the options markets, which have grown by 45% since the March 25 expiry.

The recent price recovery has been attributed to Paypal's CEO stating that demand for cryptocurrencies has been multiple-fold higher than expected. Moreover, the net value locked in Ethereum smart contracts reached a record-high $54.2 billion, led by Uniswap, Compound, and Maker.

*Ethereum network Net Value Locked. Source: DeBank.com*

The 154% increase in this metric happened while network fees sustained levels above $8 per transaction, therefore easing speculation of predatory competition. Meanwhile, Binance Smart Chain reached a $17 billion TVL, and the decentralized finance (DeFi) growth seems more than enough to support both.

Open interest soared, but 22% of it is about to mature

While the current $4.2 billion Ether options open interest represents an all-time high, $930 million of these are set to expire on April 30. As usual, Deribit exchange reigns supreme with a 90% market share.

It is worth noting that not every option will trade at expiry, as some of those strikes now sound unreasonable, especially considering there are less than three days left.

Options are divided into two segments, as the call (buy) options allow the buyer to acquire Ether at a fixed price on the expiry date. These are often used on either neutral arbitrage trades or bullish strategies.

Meanwhile, the put (sell) options are the preferred instrument for hedging to gain protection from negative price swings.

To understand how these competing forces are balanced, one should compare the calls and put options size at each expiry price (strike).

*April 30 ETH options at Deribit. Source: Laevitas.ch*

A weird pattern emerged as bears were caught by surprise, with 91% of the put options open interest at $2,400 or lower. Meanwhile, bulls were overly optimistic, with nearly half of those call options at $2,880 and above.

Bulls have a decent $115 million lead

However, any expiry above $2,240 is highly favorable for the bulls who currently lead with a $115 million open interest. This difference favoring call options would double at $2,880, although this doesn't seem to justify a 10% hike in Ether price.

As for the bears, this game seems utterly lost as only a miracle 17% drop below $2,240 would be enough to eliminate the call options advantage.

At the moment, there is little reason to believe that the April 30 options expiry will bring any surprise for Ether price. Both Deribit and OKEx settle at 8:00 AM UTC, and the focus of traders is likely to just move on to June options.

Glass half full: Bitcoin options traders neutral after 28% BTC price dip

April 26, 2021 Coin Telegraph

bitcoin options

Bitcoin options data shows pro traders are neutrally positioned despite BTC's dip to $47,000 and the subsequent 15% recovery.

Bitcoin (BTC) might have recovered from the $47,000 low seen on April 25, but the subsequent 15% bounce was not enough to bring optimism to the BTC options markets. Even at the present $54,000 level, the price remains 17% below the $64,900 all-time high reached on April 14.

The popular Crypto Fear & Greed Index reached its lowest level in 12 months, signaling thatinvestors are closer to "extreme fear," which is a complete reversal from the "extreme greed" level seen on April 18. This indicator gathers data from price volatility, volume change, social media activity, Bitcoin dominance and recent search trends.

As Bitcoin's price dropped and then recovered, the more experienced whales and arbitrage desks behind options trading were far from panicking, but their main risk gauge has recently hit a 12-month peak. However, despite these "worsening" conditions, these pro traders are neutral both in skew metrics (options pricing) and the put-to-call ratio (risk exposure).

The adjusted put-to-call options ratio stands neutral

Call options give the buyer the right to acquire BTC at a future date for a fixed price, while the seller is obliged to honor this privilege. For this right, the buyer pays an upfront fee (premium) to the counterparty. Call options are deemed neutral-to-bullish, as they give its buyer the possibility of high leverage with a little upfront investment.

On the other hand, put options provide their buyer a hedge, or protection, from negative price swings. As a result, these are widely used in neutral-to-bearish strategies.

*Deribit BTC open interest by expiry. Source: Laevitas*

As the above chart indicates, both call and put options are balanced, except for Friday's expiry. Although this could reflect short-term optimism, a more granular view shows that some ultra-bullish call options dominate the scene. Therefore, by adjusting it to a more realistic price range for the next four days, calls and puts are way more balanced.

*Deribit BTC open interest on April 30. Source: Laevitas*

Take notice of how the $72,000–$120,000 call options dominate the April 30 expiry. Therefore, considering the $44,000–$68,000 range exclusively, calls represent 48% of the outstanding open interest.

The options pricing risk indicator is neutral

To correctly interpret how professional traders are balancing the risks of unexpected market moves, the 25% delta skew provides a reliable, instant "fear and greed" analysis.

This indicator compares similar call (buy) and put (sell) options side by side and will turn negative when the neutral-to-bearish put options premium is higher than similar-risk call options. This situation is usually considered a "fear" scenario.

On the other hand, a negative skew translates to a higher cost of upside protection, which is generally interpreted as a "greed" measurement.

*Deribit 90-day BTC options 25% delta skew. Source: Laevitas*

For the first time in 2021, the 25% delta skew has flattened after spending most of the time on the "greed" side. A similar situation emerged on March 25 after BTC corrected 18% from the $61,800 peak 10 days prior.

Overall, the options markets indicators are neutral, indicating a mild lack of trust in the recent $47,000 bounce. On the other hand, the same metrics could be interpreted as positive, considering pro traders did not flip bearish despite the 28% drop in the past 11 days.

3 things every crypto trader should know about derivatives exchanges

April 24, 2021 Coin Telegraph

bitcoin futures

Understanding open interest, funding rates and the differences between futures contracts is the starting point for any investor interested in trading crypto-based derivatives.

In the past two years futures contracts have become widely popular among cryptocurrency traders and this became more evident as the total open interest on derivatives more than doubled in three months.

Additional proof of their popularity came as futures turnover surpassed gold, which is a well-established market with $107 billion in daily volume.

However, each exchange has its own orderbook, index calculation, leverage limits and rules for cross and isolated margin. These differences might seem superficial at first, but they can make a huge difference depending a traders' needs.

Open interest

As shown in the above, the total aggregate futures open interest rose from $19 billion to the current $41 billion in three months. Meanwhile, the daily traded volume has surpassed $120 billion, higher than gold's $107 billion.

While Binance futures hold the larger share of this market, a number of competitors have relevant volumes and open interest, including FTX, Bybit, and OKEx. Some differences between exchanges are obvious, such as FTX charging perpetual contracts (inverse swaps) every hour instead of the usual 8-hour window.

*BTC and ETH futures open interest, USD. Source: Bybt*

Take notice of how CME holds the third position in Bitcoin (BTC) futures, despite offering exclusively monthly contracts. The traditional CME derivatives markets also stand out for requiring a 60% margin deposit, although brokers might provide leverage for specific clients.

Stablecoin versus token-margined contracts

As for the crypto exchanges, most will allow up to 100x leverage. Tether (USDT) orders are usually denominated in BTC terms. Meanwhile, the inverse perpetual (token margined) order books are displayed in contracts, which might be worth $1 or $100 depending on the exchange.

*BTC perpetual USDT futures order entry. Source: Bybit*

The above picture shows that Bybit USDT futures order entry requires a BTC-denominated quantity and the same procedure takes place at Binance. On the other hand, OKEx and FTX offer users an easier option which allows the client to enter a USDT quantity, while automatically converting to BTC terms.

*BTC perpetual USDT futures order entry. Source: OKEx*

In addition to USDT-based contracts, OKEx offers a USDK pair. Similarly, Binance perpetual futures also offers a Binance USD (BUSD) book. Therefore, for those unwilling to use Tether as collateral, there are other options available.

Variable funding rates

Some exchanges allow clients to use very high leverage and while this might not pose an overall risk as liquidation engines and insurance funds are in place for these situations, it will pressure the funding rate. Thus, longs are usually penalized on those exchanges.

*ETH futures 8-hour funding rate. Source: Bybt*

The above chart shows that Bybit and Binance usually display a higher funding rate, while OKEx constantly presents the lowest. Traders need to understand that there are no rules enforcing this, and the rate may vary between assets or momentarily leverage demand.

Even a 0.05% difference equals 1% in additional costs per week, meaning, it is essential to compare the funding rate every once in a while, especially during bull markets when the fee tends to escalate quickly.

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

Bitcoin funding rate flips negative after $48K retest, was it a bear trap?

April 23, 2021 Coin Telegraph

Bitcoin funding rate flips negative after K retest, was it a bear trap?

bitcoin futures

Bitcoin price is more than 20% away from its all-time high, but the current negative funding rate on BTC futures might give bulls a unique advantage.

As Bitcoin (BTC) lost the $52,000 support on April 22, the futures contracts funding rate entered negative terrain. This uncommon situation causes the shorts, investors betting on price downside, to pay fees every 8 hours.

While the rate itself is mildly damaging, this situation creates incentives for arbitrage desks and market makers to buy perpetual contracts (inverse swaps) while simultaneously selling the future monthly contracts. The cheaper it is for long-term leverage, the higher the incentives for bulls to open positions, creating a perfect "bear trap."

*BTC-margined perpetual futures 8-hour funding rate. Source: Bybt*

The above chart shows how unusual a negative funding rate is, and typically it doesn't last for long. As the recent April 18 data shows, this indicator should not be used to predict market bottoms, at least not in isolation.

Monthly futures contracts are better suited for longer-term strategies

Futures contracts tend to trade at a premium, at least they do in neutral-to-bullish markets, and this happens for every asset, including commodities, equities, indexes and currencies.

However, cryptocurrencies have recently experienced a 60% annualized premium (basis), which is considered highly optimistic.

Unlike the perpetual contract (inverse swap), the monthly futures do not have a funding rate. As a consequence, their price will vastly differ from regular spot exchanges. These fixed-calendar contracts eliminate the fluctuation seen in funding rates and make it the best instrument for longer-term strategies.

*Bitcoin 1-month OKEx futures annualized premium (basis). Source: Skew*

As shown in the chart above, notice how the 1-month futures premium (basis) entered dangerously overleveraged levels, which exhausts the possibilities for bullish strategies.

Even those that previously bought futures in expectation of a further rally above the $64,900 all-time high had incentives to cut their positions.

The lower cost for bullish strategies could set bear traps

While a 30% or higher cost to open long positions is prohibitive for most bullish strategies, as the basis rate slips below 18%, it usually becomes cheaper to long futures than buying call options. This $11 billion derivatives market is traditionally very costly for bulls, mainly due to BTC's characteristic high volatility.

*Bitcoin call option contracts for June 25. Source: Deribit*

For example, buying upside protection using a $60,000 call option for June 25 currently costs $4,362. This means the price needs to rise to $64,362 for its buyer to profit, therefore a 19.7% increase from $50,423 in two months.

While the call option contract gives one infinite leverage over a small upfront position, it makes less sense for bulls than the 3% June futures premium. A 5x leveraged long position will return 120% gains if BTC happens to reach the same $64,362. Meanwhile, the $60,000 call option buyer would require the Bitcoin price to rise to $77,750 for the same profit.

Therefore, while investors have no reason to celebrate the 27% correction occurring over the past nine days, investors might interpret the move as a "glass half full."

The lower the costs for bullish strategies, the higher the incentives for bulls to set up a perfect "bear trap," fueling Bitcoin to a more comfortable $55,000 support.

he 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.

Pros say Bitcoin’s ‘very healthy’ correction ‘builds ground for more stable growth’

April 23, 2021 Coin Telegraph

Bitcoin Price

Bitcoin's price tumbled below a key support level, but financial experts agree that the correction clears the way for further upside.

Bitcoin and the wider cryptocurrency market took a beating in the late ho April 22, and intense selling saw (BTC) price dip below $48,000 in a move that came as a relief to quantitative analysts like PlanB who were worried that the price growth was showing signs of being inorganic.

A variety of factors have been identified as being the cause of the drop in price, including an overcrowded futures market and heavy selling activity from small- to medium-size whales. Aside from the activity of whales in the crypto market, the most impactful development was a proposal from the administration of United States President Joe Biden to raise the capital gains tax for individuals making more than $1 million per year.

Data from Cointelegraph Markets and TradingView shows that a heavy wave of selling led to a break below the $50,000 support level for Bitcoin on April 23, dropping the price to a low of $47,500 before a few courageous buyers arrived to lift it back above $49,000.

*BTC/USDT 4-hour chart. Source:* *TradingView*

The breakdown below $50,000 marks a 25% drawdown from the recent all-time high and now has Bitcoin trading at levels last seen in early March.

Bitcoin inflows to exchanges preceeded the downturn

When asked about April 22's price action, Micah Spruill, managing partner and chief investment officer at S2F Capital, indicated that the sell-off “appears to be an attempt to pin the price below the key $50,000 level where a significant number of put options would expire in the money.”

Spruill noted that “bearish net inflows of BTC transfers to exchanges” were the likely catalyst that “drove us down to the next level of on-chain support around $47,500,” and also highlighted the fact that “Most of the coins moved on-chain during this most recent selloff were recently acquired coins and not long term holder coins.”

*Net transfer of Bitcoin to/from exchanges. Source: Glassnode, S2F Capital*

According to Élie Le Rest, partner at digital asset management firm ExoAlpha, being able to hold the current price level “would confirm the accumulation pattern by institutional investors at or below $50,000, leaving room to grow for Bitcoin in the coming weeks/months.”

If the price should fall further, Le Rest identified $43,000 as the next strong support level, and he highlighted the fact that altcoins really began to “flourish” the last time BTC traded in this range in February.

Le Rest said that “getting back to this level may trigger a strong downside for the altcoin market as they would have lost all of their recent gains,” potentially leading to a rise in Bitcoin dominance back above 60%.

Le Rest said:

“Either way, this kind of market pullback is very healthy as it contributes to deleveraging market participants and builds ground for a more stable growth.”

Traders rush to the exits

To help better understand the rapid sell-off in the price of Bitcoin, Jarvis Labs co-founder Ben Lilly offered an analogy that alluded to traders acting like passengers on a boat to help describe what happened as a “spontaneous synchronization.”

Lilly said:

“When a boat starts to tip, a few people lean first. The more it leans, the more people also lean. Then bam, it tips…”

Lilly pointed to several opportunities that traders used to make money off this downturn including “selling the altcoin euphoria” as well as profiting from the futures carry trade. He also highlighted the fact that capital was being used to short, not to buy, in these instances.

As an indication of how rapidly the market sold off and the degree to which it caught even institutional traders by surprise, Whalemap, an on-chain analytics firm, posted the following tweet highlighting the significance of the $55,000 level.

55k should have been the bottom. 263 thousand bitcoins inflowed to whale wallets at that price. In the future, it could be a trouble area for BTC. But let's see what happens. Currently, we are at support. pic.twitter.com/Ooo20xlYzq
— whalemap (@whale_map) April 23, 2021

As for what analysts think about buying BTC below $50,000, Whalemap posted the following chart and said:

“Hourly moving losses are higher than profits. Historically that was a good buying opportunity.”

*Bitcoin moving profits and losses (MPL). Source:* *Whalemap*

The market now anxiously awaits the next major move in Bitcoin's price to help determine if this is merely an overdue correction that will lead to a continuation of the bull market or the opening salvo of the next bear market cycle.

Altcoin prices collapse

Bitcoin’s drawdown hit the altcoin market especially hard, resulting in double-digit losses for a majority of the top 100 tokens.

*Daily cryptocurrency market performance. Source:* *Coin360*

Ether (ETH), the top altcoin by market capitalization, was pummeled and at the time of writing trades more than 12% away from its April 22 all-time high of $2,640. Meanwhile, XRP and DOGE have been the hardest-hit tokens in the top 10, with their prices falling more than 20%.

Three notable exceptions to the current sell-off include Compound's COMP, WAVES and Helium's HNT, which managed to overcome the selling by posting gains of 13%, 9% and 8%, res at the time of writing.

The overall cryptocurrency market cap now stands at $1.862 trillion, and Bitcoin’s dominance rate is 50.7%.

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, andyou should conduct your own research when making a decision.

Here’s why bulls aren’t buying the Bitcoin price dip to $50,000

April 22, 2021 Coin Telegraph

Here’s why bulls aren’t buying the Bitcoin price dip to ,000

bitcoin options

Data shows pro traders are not buying the current Bitcoin dip as tomorrow’s $1.55 billion options expiry looms.

Bitcoin (BTC) has been bouncing at the $51,000 support for the past 44 days. Typically, this would be interpreted as a positive occurrence, especially considering that the $50,000 level represents a 75% advance in 2021.

However, cryptocurrency investors are typically short-term-focused and always overly optimistic. Thus, the current narrative for Bitcoin is slowly turning bearish but aside from sentiment, what story are the fundamentals telling?

However, there is a possibility that the recent drop has its roots in the $1.55 billion options expiry set to occur on April 23. As previously reported by Cointelegraph, bears have a $340 million advantage below $57,000. That could also explain why pro traders kept a neutral stance despite the 18% dip over the past eight days.

Bitcoin price at Coinbase, USD. Source: TradingView

On the other hand, some analysts such as Willy Woo have said that the Chinese coal mining accident caused the violent drop in Bitcoin's hashrate. This event, plus the electricity outage in China's Xinjiang region, may have reduced the Bitcoin network's processing power by 19%, and it exposed its heavy dependency on coal-driven energy.

While critics jumped in to bash Bitcoin, Coin Metrics co-founder Nic Carter produced a well-researched rebuttal to some of the key claims. Carter points out that Bitcoin mining, which is relatively portable, is concentrated in areas where electricity is unused and cheap.

Moreover, while the gold industry is environmentally destructive and diesel energy-dependent, Bitcoin mining can be fully powered by clean energy. Unlike precious metals, Bitcoin miners' portability allows the use of previously wasted oil and gas resources.

Whatever the case, pro traders haven't been adding positions during the recent BTC price correction.

Pro traders aren't selling but are also not buying at any price level

Major cryptocurrency exchanges provide data on their top traders' long-to-short net positioning. This indicator is calculated by analyzing clients' consolidated positions on the spot, margin, and futures contracts. By doing this, it provides a clearer view of whether professional traders are leaning bullish or bearish.

It is important to note that there are occasional methodology discrepancies between various exchanges, so one should monitor changes instead of absolute figures.

Exchange's top traders Bitcoin long-to-short ratio. Source: Bybt

The chart above shows that top traders increased their exposure between April 14 and April 17, while the Bitcoin price was above $60,000. On the other hand, over the past five days, these whales and arbitrage desks remained relatively flat.

It is worth noting that the current 1.49 ratio favoring longs on OKEx remains lower than the 1.75 level seen on April 17. This data signals that top traders reduced their positions over the past five days.

A similar trend took place at Binance, where top traders net long-to-short ratio peaked at 1.25 on April 17. Albeit slightly favoring longs, the current 1.18 indicator sits at the lower range of the past three weeks.

Lastly, Huobi top traders added long positions between April 14 and April 18, but they kept a steady 0.90 ratio.

Therefore, there is no doubt that whales and arbitrage desks are not adding to their long positions even as BTC tests the $52,000 support with a 20% correction from the April 14 peak.

However, investors are encouraged to wait for Friday's options expiry before jumping to any fast conclusions.

derivatives