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Bitcoin derivatives data points to traders’ $50K BTC price target

Bitcoin bulls expectations of $50,000 and higher remain feasible according to BTC futures and options markets.

Bitcoin (BTC) price continues to trade below its 2023 high, a sign that investors may have underestimated the strength of the $44,000 resistance. Even as BTC price trades below $42,000, it doesn't necessarily mean that reaching $50,000 and beyond is no longer possible. In fact, quite the opposite seems more likely to occur. Looking at Bitcoin derivatives metrics, it is clear that traders ignored the 6.9% drop and remained optimistic. However, is this optimism enough to justify further gains?

The $127 million liquidation of leveraged long Bitcoin futures on Dec. 11 may seem significant in absolute terms, but it represents less than 1% of the total open interest – the value of all outstanding contracts. Nevertheless, it's undeniable that the liquidation engine triggered a 7% correction in less than 20 minutes.

On one hand, one could argue that derivatives markets played a crucial role in the recent negative price movement. However, this analysis overlooks the fact that after hitting a low of $40,200 on Dec. 11, Bitcoin's price increased by 4.2% in the following six trading hours. In essence, the impact of forceful liquidation orders had dissipated long ago, disproving the notion of a crash solely driven by futures markets.

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Bitcoin price hit 2023 high, so why are retail traders waiting on the sidelines?

Bitcoin price keeps going up but retail traders are not piling in yet. Cointelegraph explores why.

The total market capitalization of the cryptocurrency market surged past $1.55 trillion on Dec. 5, driven by remarkable weekly gains of 14.5% for Bitcoin (BTC) and 11% for Ether (ETH).

Despite the recent bullish momentum, analysts have observed that retail demand remains relatively stagnant.

Numerous U.S. However, Ed Yardeni, an analyst, suggests that the "Santa Claus rally" might have already occurred earlier this year, with the S&P 500 gaining 8.9% in November.

This rise reflected diminishing inflationary pressures and robust employment data.

Did retail traders miss Bitcoin and Ether’s recent gains?

With no dependable indicator to track retail participation in cryptocurrencies, a comprehensive data set is necessary for making conclusions, beyond relying solely on Google Trends and crypto-related app download rankings.

The premium of USD Tether (USDT) in China serves as a valuable gauge of retail demand in the crypto market.

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Bitcoin price rally to $42K driven by spot volumes, not BTC futures liquidations

Bitcoin futures data counters the assumption that BTC’s rally to $42,000 was primarily propelled by shorts liquidations. What is next for BTC?

In the past seven days, Bitcoin (BTC) experienced a whopping 14.5% surge, hitting a 20-month high at $41,130 by Dec.

The impact of the recent liquidations in Bitcoin futures markets

While the Chicago Mercantile Exchange (CME) trades USD-settled contracts for Bitcoin futures, where no physical Bitcoin changes hands, these futures markets undoubtedly play a crucial role in shaping spot prices.

In the same seven-day period, a mere $200 million worth of BTC futures shorts were liquidated, representing only 1% of the total outstanding contracts.

Bitcoin futures aggregate open interest and volume, USD. Source: Coinglass

Even when focusing solely on the CME, which is known for potential trading volume inflation, its daily volume of $2.67 billion should have readily absorbed a $100 million 24-hour liquidation.

One could attempt to gauge the extent of liquidations at different price levels using tape reading techniques.

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CME Bitcoin futures show investors betting on $40K BTC price

The Bitcoin futures annualized premium jumped to 34% on Nov. 28, leading analysts to speculate about an imminent spot BTC ETF approval.

The demand for institutional investors for Bitcoin (BTC) became evident on Nov. 10 as the Chicago Mercantile Exchange (CME) Bitcoin futures flipped Binance's BTC futures markets in terms of size. According to BTC derivatives metrics, those investors are showing strong confidence in Bitcoin's potential to break above the $40,000 mark in the short term.

CME Bitcoin futures open interest, USD. Source: Coinglass

CME's current Bitcoin futures open interest stands at $4.35 billion, the highest since November 2021 when Bitcoin hit its all-time high of $69,000–a clear indication of heightened interest, but is it enough to justify further price gains?

CME's remarkable growth and the spot Bitcoin ETF speculation

The impressive 125% surge in CME's BTC futures open interest from $1.93 billion in mid-October is undoubtedly tied to the anticipation of the approval of a spot Bitcoin ETF. However, it's important to note that there's no direct correlation between this movement and the actions of market makers or issuers. Cryptocurrency analyst JJcycles raised this hypothesis in a Nov. 26 social media post.

To avoid the high costs associated with futures contracts, institutional investors have various options. For instance, they could opt for CME Bitcoin options, which require less capital and offer similar leveraged long exposure. Additionally, regulated ETF and exchange-traded notes (ETN) trading in regions like Canada, Brazil, and Europe provide alternatives.

It seems somewhat naive to believe that the world’s largest asset managers would take risky gambles using derivatives contracts on a decision that depends on the U.S. Securities and Exchange Commision (SEC) and is not expected until mid-January. Yet, the undeniable growth in CME Bitcoin futures open interest is hard evidence that institutional investors are setting their sight in the cryptocurrency.

It might seem naive to think that the world's largest asset managers would take significant risks with derivatives contracts on a decision dependent on the SEC, expected only in mid-January. However, the undeniable growth in CME Bitcoin futures open interest underscores the increasing interest of institutional investors in the cryptocurrency market.

CME's Bitcoin futures signaled extreme optimism on Nov. 28

While CME's Bitcoin futures activity has been steadily rising, the most noteworthy development has been the spike in the contracts' annualized premium (basis rate). In neutral markets, monthly futures contracts typically trade with a 5% to 10% basis rate to account for longer settlement times. This situation, known as contango, is not unique to cryptocurrency derivatives.

On Nov. 28, the annualized premium for CME Bitcoin futures surged from 15% to 34%, eventually stabilizing at 23% by day's end. A basis rate exceeding 20% indicates substantial optimism, suggesting that buyers were willing to pay a substantial premium to establish leveraged long positions. Currently, the metric stands at 14%, indicating that whatever caused the unusual movement is no longer a factor.

It's worth noting that during that 8-hour period on Nov. 28, Bitcoin's price rose from $37,100 to $38,200. However, it's challenging to determine whether this surge was driven by the spot market or futures contracts, as arbitrage between the two occurs in milliseconds. Instead of fixating on intraday price movements, traders should look to BTC option markets data for confirmation of heightened interest from institutional investors.

Related: Why is the crypto market down today?

If traders anticipate a decline in Bitcoin's price, a delta skew metric above 7% is expected, whereas periods of excitement typically result in a -7% skew.

Deribit 30-day BTC options skew. Source: Laevitas.ch

Over the past month, the 30-day BTC options 25% delta skew has consistently remained below the -7% threshold, standing near -10% on Nov. 28. This data supports the bullish sentiment among institutional investors using CME Bitcoin futures, casting doubts on the theory of whales accumulating assets ahead of a potential spot ETF approval. In essence, derivatives metrics do not indicate excessive short-term optimism.

If whales and market makers were genuinely 90% certain of SEC approval, in line with the expectations of Bloomberg’s ETF analysts, the BTC options delta skew would likely be much lower.

Nonetheless, with Bitcoin's price trading near $38,000, it appears that bulls will continue to challenge resistance levels as long as the hope for a spot ETF approval remains a driving force.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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Bitcoin traders’ bullish bias holds firm even as BTC price dips to $37K

BTC's correction reveals a disconnect between pro traders' confidence and retail investors' skepticism amid regulatory shifts.

Bitcoin (BTC) briefly reached $38,000 on Nov. 24 but faced formidable resistance at the price level. On Nov. 27, Bitcoin price traded below $37,000, which is unchanged from a week ago. 

What is eye catching is the unwavering strength of BTC derivatives, which signals that bulls remain steadfast with their intentions.

An intriguing development is unfolding in China as Tether (USDT) trades below its fair value in the local currency, the Yuan. This discrepancy often arises due to differing expectations between professional traders engaged in derivatives and retail clients involved in the spot market.

How have regulations impacted Bitcoin derivatives?

To gauge the exposure of whales and arbitrage desks using Bitcoin derivatives, one must assess BTC options volume. By examining the put (sell) and call (buy) options, we can estimate the prevailing bullish or bearish sentiment.

Deribit BTC options put-to-call volume ratio. Source: Laevitas.ch

Since Nov. 22, put options have consistently lagged behind call options in volume, by an average of 40%. This suggests a diminished demand for protective measures—a surprising development given the intensified regulatory scrutiny following Binance's plewith the U.S. Department of Justice (DoJ) and the U.S. Securities and Exchange Commission's (SEC) lawsuit against Kraken exchange.

While investors may not foresee disruptions to Binance's services, the likelihood of further regulatory actions against exchanges serving U.S. clients has surged. Additionally, individuals who previously relied on obscuring their activity might now think twice, as the DoJ gains access to historical transactions.

Furthermore, it's uncertain whether the arrangement struck by Changpeng “CZ” Zhao with authorities will extend to other unregulated exchanges and payment gateways. In summary, the repercussions of recent regulatory actions remain uncertain, and the prevailing sentiment is pessimistic, with investors fearing additional constraints and potential actions targeting market makers and stablecoin issuers.

To determine if the Bitcoin options market is an anomaly, let's examine BTC futures contracts, specifically the monthly ones—preferred by professional traders due to their fixed funding rate in neutral markets. Typically, these instruments trade at a 5% to 10% premium to account for the extended settlement period.

Bitcoin 30-day futures annualized premium. Source: Laevitas.ch

Between Nov. 24 and Nov. 26, the BTC futures premium flirted with excessive optimism, hovering around 12%. However, by Nov. 27, it dipped to 9% as Bitcoin's price tested the $37,000 support—a neutral level but close to the bullish threshold.

Retail traders are less optimistic after the ETF hopium fades

Moving on to retail interest, there is a growing sense of apathy due to the absence of a short-term positive trigger, such as the potential approval of a spot Bitcoin exchange-traded fund (ETF). The SEC is not expected to make its final decision until January and February 2024.

The USDT premium relative to the Yuan hit its lowest point in over four months at OKX exchange. This premium serves as a gauge of demand among China-based retail crypto traders and measures the gap between peer-to-peer trades and the U.S. dollar.

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

Since Nov. 20, USDT has been trading at a discount, suggesting either a significant desire to liquidate cryptocurrencies or heightened regulatory concerns. In either case, it's far from a positive indicator. Furthermore, the last instance of a 1% positive premium occurred 30 days ago, indicating that retail traders aren't particularly enthused about the recent rally toward $38,000.

Related: What’s next for Binance’s Changpeng ‘CZ’ Zhao?

In essence, professional traders remain unfazed by short-term corrections, regardless of the regulatory landscape. Contrary to doomsday predictions, Binance's status remains unaffected, and the lower trading volume on unregulated exchanges may boost the chances of a spot Bitcoin ETF approval.

The disparity in time horizons may explain the divide between professional traders and retail investors' optimism. Additionally, recent regulatory actions could pave the way for increased participation by institutional investors, offering a potential upside in the future.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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Bitcoin derivatives traders target $40K BTC price now that Binance is resolved

BTC futures and options held firm despite a wave of negative news, and data shows traders targeting $40,000.

The cryptocurrency market recently experienced events that were previously expected to present a severe negative price impact, and yet, Bitcoin (BTC) trades near $37,000 on Nov. 22, which is essentially flat from three days prior.

Such performance was utterly unexpected given the relevance of Binance’s plea deal on Nov. 21 with the United States Authorities for violating laws involving money laundering and terror financing.

Bearish news has had limited impact on Bitcoin price

One might argue that entities have been manipulating Bitcoin’s price to avoid contagion, possibly involving the issuing of unbacked stablecoins–especially those with direct ties to the exchanges suffering from the regulatory pressure. Thus, to identify whether investors became highly risk-averse one should analyze Bitcoin derivatives instead of focusing solely on the current price levels.

The U.S. government filed indictments against Binance and Changpeng "CZ" Zhao in Washington state on Nov. 14, but the documents were unsealed on Nov. 21. After admitting the offenses, CZ stepped away from Binance management as part of the deal. Penalties totaled over $4 billion, including fines imposed on CZ personally. The news triggered a mere $50 million in BTC leverage long futures contracts after Bitcoin’s price momentarily traded down to $35,600.

It is worth noting that on Nov. 20 the United States Securities and Exchange Commission (SEC) sued Kraken exchange, alleging it commingled customer funds and failed to register with the regulator as a securities broker, dealer and clearing agency. Additionally, the complaint claimed Kraken paid for operational expenses directly from accounts containing customer assets. However, Kraken said the SEC’s commingling accusations were previously earned fees, so essentially their proprietary assets.

Another potentially disastrous tidbit of news came from Mt. Gox, a now-defunct Bitcoin exchange that lost 850,000 BTC to a hack in 2014. Nobuaki Kobayashi, the Mt. Gox trustee announced on Nov. 21 the redemption of $47 million in trust assets and reportedly planned to start the first cash repayments to creditors in 2023. Even though there was no information regarding the sale of Bitcoin assets, investors speculated that this final milestone is closer than ever.

One will find posts on social networks from experienced traders and analysts that anticipated a crypto market crash in case Binance were to be indicted by the DoJ. Some examples are listed below, and it is safe to say such a theory was almost a consensus among investors.

Notice how McKeena predicted that Binance would be indicted by the DoJ and further added that the ongoing Bitcoin spot exchange-traded (ETF) fund applications will be denied by the SEC. But, as counterintuitive as it might sound, Binance going fully compliant increases the odds of the spot ETF approval. This is because it greatly weakens the SEC’s main argument for previous denials, namely the excessive volume market share on unregulated exchanges.

Nothing concrete came out from the spot Bitcoin ETF in regards to recent regulatory actions, but the amends to multiple proposals is a hint of a healthy discussion with the SEC.

Bitcoin derivatives display resilience

To confirm if the Bitcoin price resilience aligns with professional investors' risk assessment, one should analyze BTC futures and options metrics. For instance, traders could have rushed to hedge their positions, which doesn't pressure the spot markets, but vastly impacts BTC futures premium and options pricing.

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

The price of Bitcoin monthly futures contracts tend to differ from regular spot exchanges since participants demand more money to delay the settlement. That’s not exclusive to cryptocurrencies, and in a neutral market it should stand near an annualized 5% rate.

Notice how Bitcoin futures currently holds an 8% premium, which is an indication of excessive demand for leverage longs, but far from excessive. This level is lower than the 11.5% seen in mid November, but is quite positive given the recent regulatory newsflow.

Related: BlackRock met with SEC officials to discuss spot Bitcoin ETF

To confirm if Bitcoin derivatives did not experience a huge inflow of hedge operations, one needs to analyze BTC option markets as well. The 25% delta skew is a telling sign when arbitrage desks and market makers overcharge for upside or downside protection.

When traders anticipate a drop in Bitcoin’s price, the delta 25% skew tends to rise above 7%, while periods of excitement typically see it dip below negative 7%.

Bitcoin options 25% delta skew. Source: Laevitas.ch

As displayed above, the options 25% delta skew indicates optimism for the past 4 weeks as the put (sell) options have been trading at a discount when compared with similar call (buy) options. More importantly, the recent news flow did not change professional traders’ appetite for hedging strategies.

Overall, there's no doubt that the impact of regulatory actions and the potential sell pressure from Mt Gox caught the market in a great mood given the derivatives indicators.

Additionally, the liquidation of $70 million leverage BTC longs reduced the pressure from future negative price oscillations, meaning even if price revisits $35,000, there's no indication of excessive optimism.

Since the final round of ETF decisions is scheduled for January and February, there's little incentive for Bitcoin bears to pressure the market while negative news had zero impact. Ultimately, the path to $40,000 becomes more certain.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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Bitcoin futures data highlight investors’ bullish view, but there’s a catch

The stars are lining up for Bitcoin price, but a few major price threats remain in play.

Bitcoin (BTC) price surged by 26.5% in October and several indicators hit a one-year high, including the BTC futures premium and the Grayscale GBTC discount. 

For this reason, it's challenging to present a bearish thesis for BTC as data reflects the post-FTX-Alameda Research collapse recovery period and is also influenced by the recent increase in interest rates by the U.S. Federal Reserve.

Despite the positive indicators, Bitcoin price still remains around 50% below its all-time high of $69,900 which was hit in November 2021. In contrast, gold is trading just 4.3% below its $2,070 level from March 2022. This stark difference diminishes the significance of Bitcoin's year-to-date gains of 108% and highlights the fact that Bitcoin's adoption as an alternative hedge is still in its early stages.

Before deciding whether the improvement in Bitcoin futures premium, open interest and the GBTC fund premium signal a return to the norm, or the initial signs of institutional investors' interest, it's essential for investors to analyze the macroeconomic environment.

The U.S. budget issue sparks Bitcoin’s institutional hope

On Oct. 30, the U.S. Treasury announced plans to auction off $1.6 trillion of debt over the next six months. However, the key factor to watch is the size of the auction and the balance between shorter-term Treasury bills and longer-duration notes and bonds, according to CNBC.

Billionaire and Duquesne Capital founder Stanley Druckenmiller criticized Treasury Secretary Janet Yellen's focus on shorter-term debt, calling it "the biggest blunder in the history of the Treasury." This unprecedented increase in the debt rate by the world's largest economy has led Druckenmiller to praise Bitcoin as an alternative store of value.

The surge in Bitcoin futures open interest, reaching its highest level since May 2022 at $15.6 billion, can be attributed to institutional demand driven by inflationary risks in the economy. Notably, the CME has become the second-largest trading venue for Bitcoin derivatives, with $3.5 billion notional of BTC futures.

Moreover, the Bitcoin futures premium, which measures the difference between 2-month contracts and the spot price, has reached its highest level in over a year. These fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are requesting more money to delay settlement.

Bitcoin 2-month futures annualized premium. Source: Laevitas

The demand for leveraged BTC long positions has significantly increased, as the futures contract premium jumped from 3.5% to 8.3% on Oct. 31, surpassing the neutral-to-bullish threshold of 5% for the first time in 12 months.

Further bolstering the speculation of institutional demand is Grayscale's GBTC fund discount narrowing the gap to the equivalent underlying BTC holdings. This instrument was trading at a 20.7% discount on Sept. 30 but has since reduced this deficit to 14.9% as investors anticipate a higher likelihood of a spot Bitcoin exchange-traded fund (ETF) approval in the U.S.

Not everything is rosy for Bitcoin, and exchange risks loom

While the data seems undeniably positive for Bitcoin, especially when compared to previous months, investors should take exchange-provided numbers with caution, particularly when dealing with unregulated derivatives contracts.

The U.S. interest rate has surged to 5.25%, and exchange risks have escalated post-FTX, making the 8.6% Bitcoin futures premium less bullish. For comparison, the CME Bitcoin annualized premium stands at 6.8%, while Comex gold futures trade at a 5.5% premium, and CME's S&P 500 futures trade at 4.9% above spot prices.

Related: Will weakness in Magnificent 7 stocks spread to Bitcoin price?

The Bitcoin futures premium, in the broader context, is not excessively high, especially considering that Bloomberg analysts give a 95% chance of approval for a Bitcoin spot ETF. Investors are also mindful of the general risks in cryptocurrency markets, as highlighted by U.S. Senator Cynthia Lummis's call for the Justice Department to take "swift action" against Binance and Tether.

The approval of a spot Bitcoin ETF could trigger sell pressure from GBTC holders. Part of the $21.4 billion in GBTC holdings will finally be able to exit their positions at par after years of limitations imposed by Grayscale's administration and exorbitant 2% yearly fees. In essence, the positive data and performance of Bitcoin reflect a return to the mean rather than excessive optimism.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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Bitcoin price chases after $35K as BTC derivatives data signals fresh inflow

Bitcoin options and futures data suggests the current BTC price movement could have longevity.

Bitcoin’s (BTC) price action is the talk of the town this week and based on the current sentiment expressed by market participants on social media, one could almost assume that the long-awaited bull market has started. 

As Bitcoin's price rallied by 16.1% between Oct. 22 and Oct. 24, bearish traders using futures contracts found themselves liquidated to the tune of $230 million. One data point that stands out is the change in Bitcoin's open interest, a metric reflecting the total number of futures contracts in play.

The evidence suggests that Bitcoin shorts were taken by surprise on Oct. 22 but they were not employing excessive leverage.

Bitcoin futures aggregate open interest, USD. Source: Coinglass

During the rally, BTC futures open interest increased from $13.1 billion to $14 billion. This differs from August 17, when Bitcoin's price dropped by 9.2% in just 36 hours. That sudden movement caused $416 million in long liquidations, despite the lower percentage-size price move. At the time, Bitcoin's futures open interest decreased from $12 billion to $11.3 billion.

Data seems to corroborate the gamma squeeze theory that is circulating, which implies that market makers had their stop losses "chased."

Bitcoin personality NotChaseColeman explained on X social network (formerly Twitter), that arbitrage desks were likely forced to hedge short positions after Bitcoin broke above $32,000, triggering the rally to $35,195.

The most significant issue with the short squeeze theory is the increase in BTC futures open interest. This indicates that even if there were relevant liquidations, the demand for new leveraged positions outpaced the forced closures.

Did Changpeng Zhao and BNB play a role in Bitcoin's price action?

Another interesting theory from user M4573RCH on X social network claims that Changpeng "CZ" Zhao used BNB as collateral for margin on Venus Protocol, a decentralized finance (DeFi) application after being forced to sell Bitcoin to "shore up" the price of BNB token.

According to M4573RCH's theory, after a successful intervention, CZ would have paid back the interest on Venus Protocol and bought back Bitcoin using BNB to "rebalance" the position.

Notably, the BNB supply on the platform exceeds 1.2 million tokens, worth $278 million. Thus, assuming that 50% of the position is controlled by a single entity, that's enough to create a $695 million long position using 5x leverage on Bitcoin futures.

Of course, one will never be able to confirm or dismiss speculations such as the Venus-BNB manipulation or the "gamma squeeze" in Bitcoin derivatives. Both theories make sense, but it is impossible to assert the entities involved or the rationale behind the timing.

The increase in BTC futures open interest indicates that new leveraged positions have entered the space. The movement could have been driven by news that BlackRock's spot Bitcoin ETF request was listed on the Depository Trust & Clearing Corporation (DTCC), even though this event does not increase the odds of approval by the U.S. Securities and Exchange Commission.

Bitcoin derivatives point to a healthy bull run and room for further gains

To understand how professional traders are positioned after the surprise rally, one should analyze the BTC derivatives metrics. Normally, Bitcoin monthly futures trade at a 5% to 10% annualized premium compared to spot markets, indicating that sellers demand additional money to postpone settlement.

Bitcoin 1-month futures premium. Source: Laevitas.ch

The Bitcoin futures premium reached 9.5% on Oct. 24, marking the highest level in over a year. More notably, it broke above the 5% neutral threshold on Oct. 23, putting an end to a 9-week period dominated by bearish sentiment and low demand for leveraged long positions.

Related: Matrixport doubles down on $45K Bitcoin year-end prediction

To assess whether the break above $34,000 has led to excessive optimism, traders should examine the Bitcoin options markets. When traders anticipate a drop in Bitcoin's price, the delta 25% skew tends to rise above 7%, while periods of excitement typically see it dip below negative 7%.

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

The Bitcoin options' 25% delta skew shifted from neutral to bullish on Oct. 19 and continued in this direction until it reached -18% on Oct. 22. This signaled extreme optimism, with put (sell) options trading at a discount. The current -7% level suggests a somewhat balanced demand between call (buy) and put options.

Whatever triggered the surprise price rally prompted professional traders to move away from a period characterized by pessimism. However, it wasn't enough to justify excessive pricing for call options, which is a positive sign. Furthermore, there is no indication of excessive leverage from buyers, as the futures premium remains at a modest 8%.

Despite the ongoing speculation regarding the approval of a spot Bitcoin ETF, there is enough evidence to support a healthy influx of funds, justifying a rally beyond the $35,000 mark.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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Grayscale GBTC discount falls to 16% as markets bet on Bitcoin ETF approval

Some analysts say GBTC’s discount is narrowing because investors are pricing in the SEC’s approval on several pending spot Bitcoin ETF applications.

Grayscale’s Bitcoin investment vehicle, Grayscale Bitcoin Trust (GBTC) is trading at its lowest discount in nearly two years, as spot Bitcoin ETFs continue to inch toward potential approval in the United States.

The latest data from YCharts shows GBTC’s discount to Bitcoin net asset value (NAV) has narrowed to 15.87% as of Oct. 13.

Discount to net asset value (NAV) is a percentage that measures the amount that a mutual fund or ETF is trading below its net asset value. The metric is used to track how far away a security is trading away from its true value.

Data shows that GBTC’s discount began to narrow when BlackRock and several other financial institutions filed spot Bitcoin ETF applications in mid-June, where the discount fell from 44% on June 15 to 26.7% by July 5. Since then, the figure has continued to narrow.

GBTC’s Discount to NAV chart over the last 12 months. Source: YCharts

The last time GBTC’s discount was at a similar level was in early December 2021 — only a month after BTC hit its all-time high price of $69,000 on Nov. 10, according to CoinGecko.

Bitcoin advocate Oliver Velez believes the market is pricing in spot Bitcoin ETF approval by year's end.

Other analysts, such as cryptocurrency investor Lyle Pratt believe GBTC’s discount will continue to “evaporate” over the next week or two as spot Bitcoin ETFs near approval.

Reports emerged that the SEC wouldn’t appeal the Grayscale decision on Oct. 13, leading to Bloomberg ETF analyst James Seyffart referring to spot Bitcoin ETF approvals as a “done deal” in an Oct. 13 post.

Related: ETF filings changed the Bitcoin narrative overnight — Ledger CEO

On Oct. 15, Grayscale reportedly delivered a statement noting that the SEC’s 45-day period to seek a rehearing had passed, meaning the court would issue its “final mandate” within seven calendar days.

"The Grayscale team remains operationally ready to convert GBTC to an ETF upon the SEC’s approval, and we look forward to sharing more information as soon as practicable," the company reportedly said.

Cointelegraph reached out to Grayscale for comment but did not receive an immediate response.

Magazine: How to protect your crypto in a volatile market — Bitcoin OGs and experts weigh in

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Uptober might be over: Bitcoin price data shows investor sentiment at 3-month low

Bitcoin price has corrected at each attempt to rally above $28,000. Cointelegraph explains why.

Bitcoin (BTC) faced a 4.9% correction in the four days following the failure to break the $28,000 resistance on Oct. 8, and derivatives metrics show fear is dominating sentiment in the market, but will it be enough to shake Bitcoin price from its current range?

Looking at the bigger picture, Bitcoin is holding up admirably, especially when compared to gold, which has fallen by 5% since June, and Treasury Inflation-Protected bonds (TIP), which have seen a 4.2% drop during the same period. Merely maintaining its position at $27,700, Bitcoin has outperformed two of the most secure assets in traditional finance.

Given Bitcoin’s price rejection at $28,000 on Oct. 8, investors should analyze BTC derivatives metrics to determine whether bears are indeed in control.

Bitcoin/USD vs. inflation-protected TIP ETF vs. Gold. Source: TradingView

Treasury Inflation-Protected Securities are U.S. government bonds designed to safeguard against inflation. Consequently, the ETF's value tends to rise with increasing inflation since the bond principal and interest payments adjust to inflation, preserving the purchasing power for investors.

$27,600 Bitcoin is not necessarily a bad thing

Regardless of how you frame this historic achievement, Bitcoin enthusiasts may not be entirely satisfied with its current $520 billion market capitalization, even though it surpasses global payment processor Visa's ($493 billion) and Exxon Mobil's ($428 billion) market capitalizations. This bullish expectation is partly based on Bitcoin's previous all-time high of $1.3 trillion in November 2021.

It's important to note that the DXY index, which measures the U.S. dollar against a basket of foreign currencies, including the euro, Swiss Franc and British Pound, is nearing its highest level in 10 months. This indicates a strong vote of confidence in the resilience of the U.S. economy, at least in relative terms. This alone should be enough to justify reduced interest in alternative hedge instruments like Bitcoin.

Some may argue that the 3% gains in the S&P 500 index since June contradict the idea of investors seeking cash positions. However, the top 25 companies hold a combined $4.2 trillion in cash and equivalents, in addition to being highly profitable. This explains why stocks are also being used as a hedge rather than a risk-seeking venture.

In essence, there is no reason for Bitcoin investors to be dissatisfied with its recent performance. However, this sentiment changes when we analyze BTC derivatives metrics.

Bitcoin derivatives show declining demand from bulls

To begin with, Bitcoin's future contract premium, also known as the basis rate, reached its lowest level in four months. Normally, Bitcoin monthly futures trade at a slight premium compared to spot markets, indicating that sellers demand additional money to postpone settlement. As a result, futures contracts in healthy markets should trade at an annualized premium of 5% to 10%, a situation not unique to crypto markets.

Bitcoin two-month futures annualized premium. Source: Laevitas.ch

The current 3.2% futures premium (basis rate) is at its lowest point since mid-June, before BlackRock filed for a spot ETF. This metric indicates a reduced appetite for leverage buyers, although it doesn't necessarily reflect bearish expectations.

To determine whether the rejection at $28,000 on Oct. 8 has led to decreased optimism among investors, traders should examine Bitcoin options markets. The 25% delta skew is a telling indicator, especially when arbitrage desks and market makers overcharge for upside or downside protection.

Related: Did SBF really use FTX traders’ Bitcoin to keep BTC price under $20K?

If traders anticipate a drop in Bitcoin's price, the skew metric will rise above 7%, and periods of excitement tend to have a negative 7% skew.

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

As shown above, the Bitcoin options' 25% delta skew switched to "fear" mode on Oct. 10, with protective put (sell) options currently trading at a 13% premium compared to similar call (buy) options.

Bitcoin derivatives metrics suggest that traders are becoming less confident, which can be partly attributed to the multiple postponements of the Bitcoin spot ETF decisions by the U.S. Securities and Exchange Commission, and concerns regarding exchanges' exposure to terrorist organizations.

For now, the negative sentiment toward cryptocurrencies seems to invalidate any benefits arising from macroeconomic uncertainty and the natural hedge protection provided by Bitcoin's predictable monetary policy. At least from a derivatives perspective, the likelihood of Bitcoin's price breaking above $28,000 in the short term appears slim.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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