Bitcoin’s (BTC) month-to-day chart is very bearish, and the level below $18,000 seen over the weekend was the lowest price since December 2020. The bulls’ current hope lies in turning $20,000 to support, but the derivatives metrics fully show. It’s a different story as professional traders are still extremely skeptical.
It’s important to remember that the S&P 500 index fell 11% in June, and even multi-billion dollar companies like Netflix, PayPal and Caesars Entertainment are correcting with losses of 71%, 61% and 57%, respectively.
The US Federal Open Market Committee raised the benchmark rate by 75 basis points on June 15, and Federal Reserve Chairman Jerome Powell hinted that more aggressive tightening might be possible as the monetary authority continues to struggle to curb inflation. But investors and analysts fear this move will increase the risk of recession. According to the Bank of America memo issued to customers on June 17:
“Our biggest fears around the Fed have been confirmed: they’ve fallen far behind the curve and are now playing a dangerous catch-up game.”
Moreover, the record overall stablecoin market share in crypto “signals oversold conditions and from there a significant upside for crypto markets,” according to analysts at global investment bank JPMorgan Chase. According to analysts, the lower percentage of stablecoins in the total crypto market capitalization is associated with a limited crypto potential.
At the moment, crypto investors are facing mixed feelings between recession fears and optimism that the $20,000 support will strengthen as stablecoins may eventually flow into Bitcoin and other cryptocurrencies. Therefore, analysis of derivatives data is valuable in understanding whether investors are pricing in the possibility of a higher downturn.
Bitcoin futures premium turns negative for the first time in a year
Retail traders often avoid quarterly futures due to the price differential from the spot markets, but they are the instruments of choice for professional traders as they avoid the constant fluctuation in the funding rate of the contracts.
These fixed monthly contracts usually trade at a slight premium in the spot markets because investors demand more money to stop the deal. This situation is not exclusive to crypto markets. As a result, futures should trade at a premium of 5% to 12% per year in healthy markets.
Bitcoin’s futures premium failed to rise above the 5% neutral threshold, with Bitcoin price firmly holding the $29,000 support until June 11. Whenever this indicator disappears or turns negative, this is an alarming, bearish red flag and is known as a reversal to a situation.
Traders should also analyze the Bitcoin options markets to exclude externalities specific to the futures instrument. For example, a 25% delta skew indicates that Bitcoin market makers and arbitrage tables are overcharging for up or down protection.
In bullish markets, options traders give higher odds for a price pump, causing the skewness indicator to drop below -12%. On the other hand, generalized panic of a market causes a positive skew of 12% or higher.
The 30-day delta skew peaked at 36% on June 18, the highest record ever and typical of extreme bearish markets. Apparently, the 18% rise in Bitcoin price since the $17,580 bottom was enough to give derivatives traders some confidence. While the 25% skew indicator is inconvenient for pricing downside risks, at least it no longer remains at levels that reflect extreme reluctance.
Analysts expect “maximum damage” ahead
Some metrics suggest that Bitcoin may have bottomed out on June 18, particularly since the $20,000 support strengthened. On the other hand, market analyst Mike Alfred, in his view, said, “Bitcoin’s job of liquidating the big players is not over. They will reduce it to a level like Celsius that will deal maximum damage to the most exposed players.”
Until traders better see the risk of contamination from the explosion of the Terra ecosystem, the possible bankruptcy of Celsius, and the liquidity problems it faces. The probability of another Bitcoin price crash is high, says Three Arrows Capital.
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