Bitcoin traders expect a ‘generational bottom,’ but BTC derivatives data disagrees

July 7, 2022 Coin Telegraph

3AC

BTC bulls think the bottom is in, but a neutral-to-bearish price formation and the absence of a futures premium contradict their optimism.

A descending triangle pattern has been pressuring Bitcoin (BTC) for the past three weeks and while some traders cite this as a bullish reversal pattern, the $19,000 support remains a crucial level to determine the bulls' fate.

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

Despite the apparent lack of a clear price bottom, Bitcoin derivatives metrics have significantly improved since June 30 and positive news from global asset manager VanEck may have eased traders' sentiment.

On July 5, two retirement funds in the U.S. state of Virginia announced a $35 million commitment to VanEck's cryptocurrency-focused investment fund.

On the same day, a Huobi exchange subsidiary received its money services business (MSB) license from the United States Financial Crimes Enforcement Network (FinCEN). The Seychelles-based company stated that the license creates a foundation for expanding crypto-related business in the United States.

A bit of positive news came out on July 7 as decentralized finance staking and lending platform Celsius Network announced that it had fully repaid its outstanding debt to Maker (MKR) protocol.

Celsius is among several crypto yield platforms on the brink of insolvency after historic losses across multiple positions. Forced sales on leveraged positions by exchanges and decentralized finance (DeFi) applications accelerated the recent cryptocurrency price crash.

Currently, traders face mixed sentiment between possible contagion impacts and their optimism that the $19,000 support is gaining strength. For this reason, analyzing derivatives data is essential to understand whether investors are pricing higher odds of a market downturn.

Bitcoin futures premium flips slightly positive

Retail traders usually avoid quarterly futures due to their fixed settlement date and price difference from spot markets. However, the contracts' biggest advantage is the lack of a fluctuating funding rate; hence, the prevalence of arbitrage desks and professional traders.

These fixed-month contracts tend to trade at a slight premium to spot markets as sellers request more money to withhold settlement longer. This situation is technically known as "contango" and is not exclusive to crypto markets. Thus, futures should trade at a 5% to 10% annualized premium in healthy markets.

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

Bitcoin annualized futures' premium went negative on June 28, indicating low demand from leverage buyers. Yet, the bearish structure did not hold for long as the indicator shifted to the positive area on July 4.

Option traders remain skeptical of each price pump

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

Options traders give higher odds for a price increase during bullish markets, causing the skew indicator to fall below -12%. Meanwhile, a market's generalized fear sentiment induces a 12% or higher positive skew.

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

June 18 marked the highest-ever record 30-day delta skew, typical of extremely bearish markets. Still, the current 16% skew level shows investors' reluctance to provide downside protection, a fact reflected by the overcharging for put options.

Contagion is still a threat that adds pressure across the market

It’s tough to call whether $17,580 was the cycle low, but some traders attribute the movement to Three Arrows Capital's failure to meet its margin calls.

Some traders are calling for a "generational bottom," but there is still a long way before investors flip bullish as Bitcoin remains locked in a descending triangle formation.

3AC got liquidated at the generational bottom, send everything into super cycle with haste
— hentaiavenger66 (@hentaiavenger66) July 6, 2022

From one side, Bitcoin derivatives metrics show modest improvement since June 30. On the other hand, investors remain suspicious of further contagion from such an important venture capital and crypto asset manager.

Sometimes the best trade is to wait for a clearer market structure and avoid leverage at all costs, regardless of your certainty of a cycle bottom.

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

June 27, 2022 Coin Telegraph

China

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

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

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

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

An article published in The People's Daily on June 26 mentioned the Terra (LUNA), now renamed Terra Classic (LUNC), network's collapse and local blockchain expert Yifan He referring to crypto as a Ponzi scheme. When asked by Cointelegraph to clarify the statement on June 27, Yifan He stated that "all unregulated cryptocurrencies including Bitcoin are Ponzi schemes based on my understanding."

On June 24, Sopnendu Mohanty the chief fintech officer of the Monetary Authority of Singapore (MAS) pledged to be "brutal and unrelentingly hard" on any "bad behavior" from the cryptocurrency industry.

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

Bitcoin futures show a balanced force between buyers and sellers

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

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

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

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

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

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

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

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

The bottom could be in according to on-chain data

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

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

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

June 24, 2022 The Daily Hodl

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

June 24, 2022 Coin Telegraph

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

Babel Finance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Voyager Digital cuts withdrawal amount as 3AC contagion ripples through DeFi and CeFi

June 23, 2022 Coin Telegraph

3AC

Traders brace for more bad news after headlines revealed that Voyager Digital had lent $655 million to Three Arrows Capital. Is another crypto market sell-off on the way?

The Singapore-based crypto venture firm Three Arrows Capital (3AC) failed to meet its financial obligations on June 15 and this caused severe impairments among centralized lending providers like Babel Finance and staking providers like Celsius.

On June 22, Voyager Digital, a New York-based digital assets lending and yield company listed on the Toronto Stock exchange, saw its shares drop nearly 60% after revealing a $655 million exposure to Three Arrows Capital.

Voyager offers crypto trading and staking and had about $5.8 billion of assets on its platform in March, according to Bloomberg. Voyager's website mentions that the firm offers a Mastercard debit card with cashback and allegedly pays up to 12% annualized rewards on crypto deposits with no lockups.

More recently, on June 23, Voyager Digital lowered its daily withdrawal limit to $10,000, as reported by Reuters.

The contagion risk spread to derivatives contracts

It remains unknown how Voyager shouldered so much liability to a single counterparty, but the firm is willing to pursue legal action to recover its funds from 3AC. To remain solvent, Voyager borrowed 15,000 Bitcoin (BTC) from Alameda Research, the crypto trading firm spearheaded by Sam Bankman-Fried.

Voyager has also secured a $200 million cash loan and another 350 million USDC Coin (USDC) revolver credit to safeguard customer redemption requests. Compass Point Research & Trading LLC analysts noted that the event "raises survivability questions" for Voyager, hence, crypto investors question whether further market participants could face a similar outcome.

- Unsecured derivatives and options trading on Deribit
- $650 million of unsecured debt with Voyager
- Offering protocols/portfolio companies 8-10% APY on their cash balances

What else?
— Dylan LeClair (@DylanLeClair_) June 22, 2022

Even though there is no way to know how centralized crypto lending and yield firms operate, it is important to understand that a single derivatives contract counterparty cannot create contagion risk.

A crypto derivatives exchange could be insolvent, and users would only notice it when trying to withdraw. That risk is not exclusive to cryptocurrency markets, but is exponentially increased by the lack of regulation and weak reporting practices.

How do crypto futures contracts work?

The typical futures contract offered by the Chicago Mercantile Exchange (CME) and most crypto derivatives exchanges, including FTX, OKX and Deribit, allow a trader to leverage its position by depositing margin. This means trading a larger position versus the original deposit, but there's a catch.

Instead of trading Bitcoin or Ether (ETH), these exchanges offer derivatives contracts, which tend to track the underlying asset price but are far from being the same asset. So, for instance, there is no way to withdraw your futures contracts, let alone transfer those between different exchanges.

Moreover, there's a risk of this derivatives contract depegging from the actual cryptocurrency price at regular spot exchanges like Coinbase, Bitstamp or Kraken. In short, derivatives are a financial bet between two entities, so if a buyer lacks margin (deposits) to cover it, the seller will not take the profits home.

How do exchanges handle derivatives risk?

There are two ways an exchange can handle the risk of insufficient margin. A "clawback" means taking the profits away from the winning side to cover the losses. That was the standard until BitMEX introduced the insurance fund, which chips away from every forced liquidation to handle those unexpected events.

However, one must note that the exchange acts as an intermediary because every futures market trade needs a buyer and seller of the same size and price. Regardless of being a monthly contract, or a perpetual future (inverse swap), both buyer and seller are required to deposit a margin.

Crypto investors are now asking themselves whether or not a crypto exchange could become insolvent, and the answer is yes.

If an exchange incorrectly handles the forced liquidations, it might impact every trader and business involved. A similar risk exists for spot exchanges when the actual cryptocurrencies in their wallets are shorter than the number of coins reported to their clients.

Cointelegraph has no knowledge of anything abnormal regarding Deribit's liquidity or solvency. Deribit, along with other crypto derivatives exchanges, is a centralized entity. Thus, the information available to the general public is less than ideal.

History shows that the centralized crypto industry lacks reporting and auditing practices. This practice is potentially harmful to every individual and business involved, but as far as futures contracts go, contagion risk is limited to the participants' exposure to each derivatives exchange.

Bitcoin futures enter backwardation for the first time in a year

June 20, 2022 Coin Telegraph

basis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Analysts expect “maximum damage” ahead

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

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

Market selling might ease, but traders are on the sidelines until BTC confirms $20K as support

June 17, 2022 Coin Telegraph

Market selling might ease, but traders are on the sidelines until BTC confirms K as support

3AC

BTC and altcoins could continue to see selling, but a positive is that traders took shelter in stablecoins instead of completely exiting the crypto market.

The total crypto market capitalization fell off a cliff between June 10 and June 13 as it broke below $1 trillion for the first time since January 2021. Bitcoin (BTC) fell by 28% within a week and Ether (ETH) faced an agonizing 34.5% correction.

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

Presently, the total crypto capitalization is at $890 million, a 24.5% negative performance since June 10. That certainly raises the question of how the two leading crypto assets managed to underperform the remaining coins. The answer lies in the $154 billion worth of stablecoins distorting the broader market performance.

Even though the chart shows support at the $878 billion level, it will take some time until traders take in every recent event that has impacted the market. For example, the U.S. Federal Reserve raised interest rates by 75 basis points on June 15, the largest hike in 28 years. The central bank also initiated a balance sheet cut in June, aiming to reduce its $8.9 trillion positions, including mortgage-backed securities (MBS).

Venture firm Three Arrows Capital (3AC) has reportedly failed to meet margin calls from its lenders, raising high major insolvency red flags across the industry. The firm’s heavy exposure to Grayscale Bitcoin Trust (GBTC) and Lido’s Staked ETH (stETH) was partially responsible for the mass liquidation events. A similar issue forced crypto lending and staking firm Celsius to halt users’ withdrawals on June 13.

Investors' spirit is effectively broken

The bearish sentiment was clearly reflected in crypto markets as the Fear and Greed Index, a data-driven sentiment gauge, hit 7/100 on June 16. The reading was the lowest since August 2019 and it was last seen outside the "extreme fear" zone on May 7.

*Crypto Fear and Greed Index. Source: alternative.me*

Below are the winners and losers since June 10. Curiously, Ether was the only top-10 crypto to figure on the list, which is unusual during strong corrections.

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

WAVES lost another 37% after the project's largest decentralized finance (DeFi) application Vires Finance implemented a daily $1,000 stablecoin withdrawal limit.

Ether dropped 34.5% as developers postponed the switch to a Proof of Stake consensus mechanism for another two months. The "difficulty bomb" will essentially cease mining processing, paving the way for the Merge.

AAVE traded down 33.7% after MakerDAO has voted to cut off the lending platform Aave's ability to generate DAI for its lending pool without collateral. The community-led decision aims to mitigate the protocol's exposure to a potential impact from staked Ether (stETH) collateral.

Asian traders flew into stablecoins

The OKX Tether (USDT) premium is a good gauge of China-based retail crypto trader demand. It measures the difference between China-based peer-to-peer (P2P) trades and the United States dollar.

Excessive buying demand tends to pressure the indicator above fair value at 100%, and during bearish markets, Tether's market offer is flooded and causes a 4% or higher discount.

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

Contrary to the expectations, Tether had been trading with a premium in Asian peer-to-peer markets since June 12. Despite the massive sell-off in crypto prices, investors have been seeking protection in stablecoins, instead of exiting to fiat currency. This movement lasted until June 17, as the USDT paired its price versus the official foreign exchange currency rate.

One should analyze crypto derivatives metrics to exclude externalities specific to the stablecoin market. For instance, perpetual contracts 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 perpetual futures funding rate on June 17. Source: Coinglass*

Those derivative contracts show more significant demand for leverage short (bear) positions across the board. Although Bitcoin and Ether’s numbers were insignificant, the TRX token and Polkadot (DOT) situation raise concerns.

Pokadot's negative 0.90% weekly rate equals 3.7% per month, meaning those betting on the price decrease are willing to pay a reasonable fee to maintain their leverage positions. This is usually interpreted as a sign of confidence from bears, hence slightly worrisome.

The market dipped by 70% and there’s still no demand from leverage longs

The big question is how backward-looking are investors' fear and lack of appetite for buyers using leverage despite the 70% correction since the November 2021 peak. It is encouraging to know that Asian traders moved their positions to Tether instead of exiting all markets to fiat deposits.

There likely won't be a clear sign of a bottom formation, but Bitcoin bulls need to hold ground at $20,000 to avoid breaking a 13-year-old pattern of never breaking below the previous 4-year cycle all-time high.

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

June 17, 2022 Coin Telegraph

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

Coin Telegraph

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

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

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

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

Options traders remain extremely risk-averse

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

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

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

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

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

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

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

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

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

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

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

Hope for the best, but prepare for the worst

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

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

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

Large Bitcoin liquidations mean one man’s pain is another man’s pleasure — Time to buy the dip?

June 15, 2022 Coin Telegraph

3AC

Pro traders were forced to cut their losses after margin and futures markets became over-leveraged, creating a potential entry point for bullish buyers.

Bitcoin (BTC) has been unable to restore the $24,000 support since Celsius, a popular staking and lending platform, paused withdrawals from its platform on June 13. A growing number of users believe Celsius mismanaged its funds following the collapse of the Anchor Protocol on the Terra Luna ecosystem and rumors of its insolvency continue to circulate.

An even larger issue emerged on June 14 after crypto venture capital firm Three Arrows Capital (3AC) reportedly lost $31.4 million through trading on Bitfinex. Furthermore, 3AC was a known investor in Terra, which experienced a 100% crash in late May.

Unconfirmed reports that 3AC faced liquidations totaling hundreds of millions from multiple positions agitated the market in the early hours of June 15, causing Bitcoin to trade at $20,060, its lowest level since Dec. 15, 2020.

Let’s take a look at current derivatives metrics to understand whether today’s bearish trend reflects top traders' sentiment.

Margin markets deleveraged after a brief spike in longs

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

On the other hand, Bitcoin borrowers can short the cryptocurrency if they bet on its price decline, and unlike futures contracts, the balance between margin longs and shorts isn‘t always matched. This is why analysts monitor the lending markets to determine whether investors are leaning bullish or bearish.

Interestingly, margin traders boosted their leverage long (bull) position on June 14 to the highest level in two months.

*Bitfinex margin Bitcoin/USD longs/shorts ratio. Source: TradingView*

Bitfinex margin traders are known for creating position contracts of 20,000 BTC or higher in a very short time, indicating the participation of whales and large arbitrage desks.

As the above chart indicates, even on June 14 the number of BTC/USD long margin contracts outpaced shorts by 49 times, at 107,500 BTC. For reference, the last time this indicator stood below 10, favoring longs, was on March 14. The result benefited the counter-traders at that time, as Bitcoin rallied 28% over the following two weeks.

Bitcoin futures data shows pro traders were liquidated

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

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

It's important to note the methodological discrepancies between different exchanges, so the absolute figures have less importance. For example, while Huobi traders have kept their long-to-short ratio relatively unchanged between June 13 and June 15, professional traders at Binance and OKX reduced their longs.

This movement could represent liquidations, meaning the margin deposit was insufficient to cover their longs. In these cases, the exchange's automatic deleveraging mechanism takes place by selling the Bitcoin position to reduce the exposure. Either way, the long-to-short ratio is affected and signals a less bullish net position.

Liquidations could represent a buying opportunity

Data from derivatives markets, including margin and futures, show that professional traders were definitely not expecting such a deep and continuous price correction.

Even though there has been a high correlation to the stock market and the S&P 500 index posted a 21.6% year-to-date loss, professional crypto traders were not expecting Bitcoin to drop another 37% in June.

While leverage allows one to maximize gains, it can also force cascading liquidations such as the recent events seen this week. The automated trading systems of exchanges and DeFi platforms sell investors’ positions at whatever price is available when the collateral is insufficient to cover the risk and this put heavy pressure on spot markets.

These liquidations sometimes create a perfect entry point for those savvy and brave enough to counter-trade excessive corrections due to lack of liquidity and the absence of bids on the trading platforms. Whether or not this is the final bottom is something that will be impossible to determine until a few months after this volatility has passed.

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

June 13, 2022 Coin Telegraph

Celsius

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

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

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

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

MicroStrategy and Celsius leverage use raised alarms

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

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

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

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

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

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

Bitcoin futures metrics are near bearish territory

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

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

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

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

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

An unhealthy derivatives market is an ominous sign

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

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

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

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

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

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

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