The Bitcoin (BTC), which is currently below $40,000, remains the lowest for three consecutive days. The most likely cause of volatility is the worsening conditions in traditional markets. The S&P 500 has fallen 5% since April 20 WTI crude oil price fell 9.5% in seven consecutive days. This erases all gains since March 1.
China is struggling to contain the worst Covid-19 outbreak despite tight lockdowns in Shanghai. Timothy Moe, chief Asia-Pacific equity strategist for Goldman Sachs, said that “it’s not surprising, and it makes all kinds of logical sense that market should be concerned about Covid situation because it clearly impacts economic activity.”
Risky assets drove investors away
Investors took advantage of the worsening global macroeconomic situation to make profits on more risky assets. The U.S. Dollar Index (DXY), which reached 101.8 in its 25-month anniversary, was the highest ever recorded.
After Jared Huffman, a member of the United States House of Representatives, and 22 other lawmakers asked the Environmental Protection Agency for an assessment of whether crypto mining companies were violating any environmental statutes on April 21, the cryptocurrency mining industry also faced regulatory uncertainty.
According to on-chain data from Glassnode, most Bitcoin holders chose to remain hands-off despite the 10% correction in Bitcoin’s price to $38,200 on April 25. At 64%, the proportion of supply that has been dormant for at most 12 months is at an all-time high. It is worth looking into whether recent price declines have affected the mood of derivatives traders.
Bearish Bitcoin traders are evident in derivatives markets
The Bitcoin futures premium (basis) is a key indicator of whether the market has gone bearish. These fixed-calendar options do not have a funding rate like a perpetual contract. Their price will be very different from regular spot exchanges.
The expense gap between the regular spot and futures markets can be used by traders to gauge market bullishness.
Basis rate for 3-month Bitcoin futures. Source: Laevitas.ch
Futures should trade at a premium of 5% to 12 percent annually in healthy markets. As you can see, Bitcoin’s basis fell below this threshold on April 6, and it is currently at 2%. Futures markets have priced in bearish momentum over the past few weeks.
Trader should also look at the options markets to exclude any externalities that may be associated with the futures instrument. The 25% delta skew, for example, compares similar call (buy), and put (sell).
This indicator will be positive when fear prevails, as the protective put options premium exceeds similar risk-call options. The opposite happens when greed takes over, and the 25% delta skew indicator shifts to the negative.
Bitcoin 30-day Options 25% Delta skew Source: Laevitas.ch
The skew indicator would rise above 8% if option investors were worried about a price crash. Generalized excitement, however, reflects a negative 8.8% skew. On April 7, the metric turned bearish and has remained above the threshold since then.
Related: Bitcoin’s lowest weekly close since March 1, as the 4th red candle looms
Traders will resist any price pump
Based on derivatives indicators, it’s safe to say that Bitcoin pro traders felt more uncomfortable when Bitcoin tested the $39,000 support.
Although no data can accurately predict whether Bitcoin will continue to fall, the data suggests that traders are charging too much for protection against the downside. Any surprise price recovery will therefore be in doubt.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.
Eileen Wilson –Technology and Energy
My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.