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‘Investors Are Running out of Havens’ — Erratic Behavior in US Bond Markets Points to Deep Recession, Elevated Sovereign Risk

September 22, 2022 Bitcoin.com

3 Bitcoin price metrics suggest today’s 10% pump marked the final cycle bottom

September 9, 2022 Coin Telegraph

Is the BTC bottom finally in? Data suggests that bears might be losing their tight grip on the market.

The correlation between Bitcoin (BTC) and stock markets has been unusually high since mid-March, meaning the two asset classes have presented near-identical directional movement. This data might explain why the 10% rally above $21,000 is being dismissed by most traders. Especially considering S&P 500 futures gained 4% in two days. However, Bitcoin trading activity and the derivatives market strongly supports the recent gains.

Curiously, the current Bitcoin rally happened a day after the White House Office of Science and Technology Policy released a report investigating the energy usage associated with digital assets. The study recommended enforcing energy reliability, efficiency standards and it also suggested Federal Agencies provide technical assistance and initiate a collaborative process with the industry.

*Bitcoin/USD (orange, left) vs. S&P 500 futures (blue). Source: TradingView*

Notice how the peaks and valleys on both charts tend to coincide, but the correlation changes as investors’ perceptions and risk assessments vary over time. For example, between May 2021 and July 2021, the correlation was inverted most of the period. Overall, the stock market posted steady gains while the crypto markets collapsed.

More importantly, the chart above shows a huge gap being opened between Bitcoin and the stock market as stocks rallied from mid-July to mid-August. A comparison using the same scale would be better, but that does not work due to the difference in volatility. Still, it is reasonable to conclude that historically these gaps tend to close.

The S&P 500 futures declined 18% in 2022 until Sept. 6, while Bitcoin dropped 60.5% during the same period. So it makes sense to assume that if investors’ appetite for risk assets returns, assets with higher volatility will outperform during a rally.

There are other factors that are in play though, so there is no way to predict the outcome, but the return of investors’ appetite for risk would justify Bitcoin to outperform the stock market and significantly reduce the performance difference.

Pro traders were not expecting Bitcoin to bounce

Bearish traders were liquidated on $120 million in futures contracts, the highest figure since June 13. Typically, one would not expect this outcome considering Bitcoin had lost 13% in the two weeks leading to Sept. 7, but one could assume that short sellers (bears) were caught by surprise as the exchanges’ liquidation engine scrambled to buy those orders.

However, there’s another anecdotal evidence hidden in the liquidation data provided by the derivatives exchanges.

*Bitcoin futures 24-hour liquidation data. Source: CoinGlass*

Notice how retail-driven exchanges (Binance and Bybit) represented a mere 17.4% of the total orders that were forcefully closed, while their combined market share on Bitcoin futures is 30.6% the data leaves no doubt that the whales at OKX and FTX were the ones being squeezed.

Another interesting piece of data that sets today’s 10% pump apart is Bitcoin dominance, which measures its market share versus all other cryptocurrencies.

*Bitcoin dominance. Source: TradingView*

Notice how the indicator spiked from 39% to the present 40.5%, something unseen since May 11 when Bitcoin flash crashed below $26,000. It took another 31 days for the bear market to break the $28,500 support on June 12. Also note that a sharp increase in BTC dominance can happen during rallies and steep price corrections so relying solely on these indicators provides little aid in interpreting market movements.

Fear has been erased from options markets

The 25% delta skew, which is the leading Bitcoin options “fear and greed” metric, improved just enough to enter a neutral level.

*Bitcoin 60-day options 25% delta skew: Source: Laevitas.ch*

If option investors feared a price crash, the skew indicator would move above 12%, whereas investor excitement tends to reflect a negative 12% skew. After peaking at 18% on Sept. 7, the metric currently stands at 12% which is the very edge of the neutral market. Therefore, the Bitcoin pump on Sept. 9 signaled that professional investors are no longer demanding excessive premiums for protective put options.

These three indicators back the relevance of Bitcoin’s recent 10% pump. A $120 million liquidation on leverage shorts (bears) was concentrated on less “retail-oriented” derivatives exchanges, the 1.5% hike in Bitcoin’s dominance rate and options traders pricing similar upside and downside risks all suggest that Bitcoin may have finally found a 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 derivatives show a lack of confidence from bulls

August 2, 2022 Coin Telegraph

Coin Telegraph

High correlation to stock markets and recession risks limit optimism on the part of BTC investors.

Bitcoin (BTC) has been trending up since mid-July, although the current ascending channel formation holds $21,100 support. This pattern has been holding for 45 days and could potentially drive BTC towards $26,000 by late August.

*Bitcoin/USD 12-hour price. Source: TradingView*

According to Bitcoin derivatives data, investors are pricing higher odds of a downturn, but recent improvements in global economic perspective might take the bears by surprise.

The correlation to traditional assets is the main source of investors' distrust, especially when pricing in recession risks and tensions between the United States and China ahead of House Speaker Nancy Pelosi's visit to Taiwan. According to CNBC, Chinese officials threatened to take action if Pelosi moved forward.

The U.S. Federal Reserve's recent interest rate hikes to curb inflation brought further uncertainty for risk assets, limiting crypto price recovery. Investors are betting on a "soft landing," meaning the central bank will be able to gradually revoke its stimulus activities without causing significant unemployment or recession.

The correlation metric ranges from a negative 1, meaning select markets move in opposite directions, to a positive 1, which reflects a perfect and symmetrical movement. A disparity or a lack of relationship between the two assets would be represented by 0.

*S&P 500 and Bitcoin/USD 40-day correlation. Source: TradingView*

As displayed above, the S&P 500 and Bitcoin 40-day correlation currently stands at 0.72, which has been the norm for the past four months.

On-chain analysis corroborates longer-term bear market

Blockchain analytics firm Glassnode's "The Week On Chain" report from Aug. 1 highlighted Bitcoin's weak transaction and the demand for block space resembling the 2018–19 bear market. The analysis suggests a trend-breaking pattern would be required to signal new investor intake:

"Active Addresses [14 days moving average] breaking above 950k would signal an uptick in on-chain activity, suggesting potential market strength and demand recovery."

While blockchain metrics and flows are important, traders should also track how whales and market markers are positioned in the futures and options markets.

Bitcoin derivatives metrics show no signs of “fear” from pro traders

Retail traders usually avoid monthly futures due to their fixed settlement date and price difference from spot markets. On the other hand, arbitrage desks and professional traders opt for monthly contracts due to the lack of a fluctuating funding rate.

These fixed-month contracts usually trade at a slight premium to regular spot markets as sellers demand more money to withhold settlement longer. Technically known as "contango," this situation is not exclusive to crypto markets.

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

In healthy markets, futures should trade at a 4% to 8% annualized premium, enough to compensate for the risks plus the cost of capital. However, according to the above data, Bitcoin's futures premium has been below 4% since June 1. The reading is not particularly concerning given that BTC is down 52% year-to-date.

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

If option investors fear a Bitcoin price crash, the skew indicator would move above 12%. On the other hand, generalized excitement reflects a negative 12% skew.

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

The skew indicator has been below 12% since July 17, considered a neutral area. As a result, options traders are pricing similar risks for both bullish and bearish options. Not even the retest of the $20,750 support on July 26 was enough to instill "fear" in derivatives traders.

Bitcoin derivatives metrics remain neutral despite the rally toward $24,500 on July 30, suggesting that professional traders are not confident in a sustainable uptrend. Thus, data shows that an unexpected move above $25,000 would take professional traders by surprise. Taking a bullish bet might seem contrarian right now, but simultaneously, it creates an interesting risk-reward situation.

Bitcoin price broke to the upside, but where are all the leveraged long traders?

June 1, 2022 Coin Telegraph

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BTC price looks to break out of its downtrend, yet pro traders are still unwilling to add leveraged positions.

This week's Bitcoin (BTC) chart leaves little doubt that the symmetrical triangle pattern is breaking to the upside after constricting the price for nearly 20 days. However, derivatives metrics tell a completely different story because professional traders are unwilling to add leveraged positions and are overcharging for downside protection.

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

Will BTC reverse course even as macroeconomic conditions crumble?

Whether BTC turns the $30,000 to $31,000 level into support depends to some degree on how global markets perform.

The last time U.S. stock markets faced a seven-week consecutive downtrend was over a decade ago. New home sales in the U.S. declined for the fourth straight month, which is also the longest streak since October 2010.

China saw a whopping 20% year-on-year decline for its on-demand services, the worst change on record. According to government data released on May 30, consumer spending for internet services from January to April stood at $17.7 billion.

The value of stock offerings in Europe also hit the worst level in 19 years after rising interest rates, inflation and macroeconomic uncertainties caused investors to seek shelter in cash positions. According to Bloomberg, initial public offerings and follow-on transactions raised a mere $30 billion throughout 2022.

All of the above make it easier to understand the discrepancy between the recent Bitcoin price recovery to $32,300 and weak derivatives data because investors are pricing higher odds of a downturn, primarily driven by worsening global macroeconomic conditions.

Derivatives metrics are neutral-to-bearish

Retail traders usually avoid quarterly futures due to their price difference from spot markets, but they are professional traders' preferred instrument because they avoid the perpetual contracts fluctuating 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.

According to data from Laevitas, Bitcoin's futures premium has been below 4% since April 12. This reading is typical of bearish markets and it’s worrisome that the metric failed to break above the 5% neutral threshold even as the price moved toward $32,000.

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

During bearish markets, options investors give higher odds for a price crash, causing the skew indicator to move above 12%. On the other hand, a bull markets' generalized excitement induces a negative 12% or lower skew.

The 30-day delta skew peaked at 25.4% on May 14, the highest-ever record and typical of extremely bearish markets. However, the situation improved on May 30 and 31 as the indicator stabilized at 14%, but it prices in higher odds of a price crash. Still, it shows a moderate sentiment improvement from derivatives traders.

The risks of a global economic slowdown are probably the main reason why Bitcoin options markets are stressed and why the futures premium is still low. The 30-day correlation of BTC versus the S&P 500 index is at 89%, meaning traders have fewer incentives to place bullish bets on cryptocurrencies.

Some metrics suggest that the stock market may have bottomed last week, especially since it’s trading 8.5% above the May 20 intraday low, but weak economic numbers are weighing on investor sentiment. This drives the risk-averse momentum and has a negative impact on cryptocurrency markets.

Until there's a better definition for traditional finance and the world's biggest economies, Bitcoin traders should continue to avoid building leveraged long positions and maintain a bearish stance, a feature that is currently reflected in options markets.

Altcoins Close to Being ‘Obliterated’ As Bitcoin Holds On to Historically Critical Support Level: Crypto Analyst

April 13, 2022 The Daily Hodl

Here’s why Bitcoin traders shouldn’t overanalyze US inflation data

February 11, 2022 Coin Telegraph

CNBC

Analysts say record high inflation in the United States is impacting crypto market momentum, but is the impact of the data overstated to the detriment of investors?

Analysts and pundits will scramble to find some angle to explain intra-day price action whenever important economic numbers are published and this practice is commonplace in the crypto sector.

When the United States Bureau of Labor Statistics reported a 7.5% increase in the Consumer Price Index (CPI) on Feb. 10, traders rushed to find some connection to the crypto price action. However, historical correlation data shows investors should actually closely scrutinize whether there is even a relation between Bitcoin (BTC) and major economic indicators.

General investment advice would suggest that traders ignore the intraday movements, especially considering that most assets do not trade on a 24-hours basis.

More importantly, Bitcoin’s order book depth pales in comparison to gold, WTI and the S&P 500 futures. Even if one aggregates stablecoin trading, Bitcoin’s 7-day average volume is $7 billion, whereas the three largest S&P 500 exchange-traded funds handle $54 billion.

In short, a large order flow from a single entity could easily distort the cryptocurrency market in the short term, but the impact on WTI oil, the S&P 500 and gold tends to be smaller.

Does Bitcoin price anticipate inflation data?

Bitcoin price dipped to $43,200 after the 7.5% increase in the U.S. consumer price index was released on Feb. 10, leading reporters at CNBC to correlate the two events.

Bitcoin dips slightly as 10-year Treasury yield tops 2% on hotter-than-expected inflation report https://t.co/bI8NzMQRPD
— CNBC (@CNBC) February 10, 2022

That statement correctly assessed the market conditions at that time, but one should use a longer time frame when analyzing economic data. Furthermore, there’s the possibility that Bitcoin holds no relevant price correlation, a hypothesis that also needs testing.

A comparative long-term chart between Bitcoin price and U.S. inflation gives a false impression of correlation and causation, especially when using logarithmic charts.

*U.S. CPI (orange, left) vs. Bitcoin/USD (blue, right). Source: TradingView*

If anything, Bitcoin has anticipated the economic data by roughly three months. In September 2020, it rallied above $11,000 while the inflation data stagnated below 1.5% and more recently in May 2021.

Afterward, the Bitcoin price “cooled off,” failing to break the $60,000 support while the sharp increase in CPI paused two months later in July at 5.4%.

For those relying on mathematical formulas, the correlation coefficient between Bitcoin price and U.S. inflation oscillated between positive 0.95 and negative 0.94 over the past 12 months. Therefore, associating one to another makes very little sense from a statistical approach.

Do traditional markets really show correlation with Bitcoin?

Another common mistake is attributing the correlation of other assets to Bitcoin’s performance. Sure enough, there might be a couple of consecutive months of 0.65 (positive or negative) correlation over a year-long period, but data suggests otherwise.

*Bitcoin, S&P500, WTI Oil, and TIP ETF 30-day correlation charts. Source: TradingView*

For instance, between August and September 2021, the S&P 500 correlation to BTC averaged 0.65. However, that is cherry-picking data because a more extended timeframe reveals no such evidence.

No price relation was found between Bitcoin and other major assets such as the WTI oil price and the iShares TIPS Bond ETF, which tracks an index composed of inflation-protected U.S. Treasury bonds.

Various data points suggest that investors should ignore the intraday price action after economic data is released, because at times, the data provides a false impression between correlation and causation.

Although inflation or other data influence short-term pricing, it does not necessarily impact the prevailing trend. The correlation chart versus traditional markets leaves little doubt that Bitcoin is a class of its own.

Strong Bitcoin and stocks rally position bulls for victory in Friday’s $860M options expiry

February 10, 2022 Coin Telegraph

Strong Bitcoin and stocks rally position bulls for victory in Friday’s 0M options expiry

Coin Telegraph

Recent strength in BTC and the recovery in equities markets are boosting investors’ confidence and giving bulls the upper hand.

Bitcoin (BTC) bulls have good reason to celebrate the 22% gain in the past week. The price is pushing toward $46,000 and to the surprise of many, the $43,000 level held steady despite the volatility caused by the United States inflation data released on Feb.10.

There have been mixed feelings on the macroeconomic side. For example, retail sales in the Eurozone disappointed on Feb. 4 when the figure showed a 2.0% year-on-year growth versus the 5.1% expectation. while the United States nonfarm payroll abruptly showed a 467,000 jobs increase.

Investors are clearly increasingly concerned about corporate earnings despite the stronger than expected China and U.S. economic growth. In the past few weeks, some big names took a hit, including Meta (FB), Delivery Hero (DHER-DE) and Paypal (PYPL).

Feb. 10’s 7.5% yearly U.S. consumer price index growth will likely reinforce the Federal Reserve’s expectations of at least two interest rate hikes throughout 2022 and not many investors can seek protection in treasuries because the five-year Treasury yield currently stands at 1.9%.

Bitcoin is still a risky asset, but its price is discounted

Considering that the S&P 500 is only 5% shy of its all-time high, Bitcoin’s recent strength should not come as a surprise. Curiously, put (sell) option instruments dominate the Feb. 11 options expiry, but bears were caught by surprise after Bitcoin price stabilized above $43,000 this week.

*Bitcoin options aggregate open interest for Feb. 11. Source: CoinGlass*

A broader view using the call-to-put ratio shows a 14% advantage to Bitcoin bears because the $400 million call (buy) instruments have a smaller open interest versus the $460 million put (sell) options. However, the 0.86 call-to-put indicator is deceptive because most bearish bets will become worthless.

For example, if Bitcoin’s price remains above $44,000 at 8:00 am UTC on Feb. 11, only $55 million worth of those put (sell) options will be available. That effect happens because there is no value in the right to sell Bitcoin at $40,000 if it’s trading above that level.

Bulls are aiming for a $300 million profit

Below are the three most likely scenarios based on the current price action. The number of options contracts available on Feb. 11 for bulls (call) and bear (put) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $42,000 and $44,000: 4,550 calls vs. 1,750 puts. The net result is $120 million favoring the call (bull) instruments.
Between $44,000 and $46,000: 6,380 calls vs. 860 puts. The net result favors bulls by $250 million.
Between $46,000 and $48,000: 7,860 calls vs. 50 puts. The net result favors the call (bull) instruments by $350 million.

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

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

Bears best-case scenario remains unkind

Bitcoin bulls need a small pump above $46,000 to score a $350 million profit on Feb. 11. On the other hand, bears’ best case scenario requires a 4% price drop from the current $45,600 to reduce their loss to $120 million.

Bitcoin bears currently have no reason to add short positions, considering the recent weak corporate data numbers. Therefore, bulls should continue to display strength by pushing the price to $46,000 or higher during Feb. 10’s options expiry.

A $350 million profit might be just what’s needed for bulls to regain confidence and re-open long leverage futures, causing further upward pressure.

Goldman Sachs Lists 19 ‘Crypto’ Stocks That Crushed S&P 500 Thanks to Bitcoin’s Surge

May 1, 2021 Bitcoin.com