Bitcoin traders were ready for a hot CPI report, but BTC bears are still in control

After the October 13 Consumer Price Index Report revealed that inflation in the United States rose by 0.6% in September, cryptocurrency traders were taken by surprise. Bitcoin (BTC), which experienced a 4.4% price correction in just three hours, saw its value drop from $19,000 to $18,175 due to the slightly higher than expected number.

This sudden movement resulted in $55 million in Bitcoin derivatives exchange liquidations, the largest in three weeks. The $18,200 level marked an 8.3% weekly correction and was the lowest since Sept. 21, 2017.

Bitcoin/USD 1-hour price. Source: TradingView

It is important to note that the plunge below $18,600 on September 21 lasted for less than five hours. Bears likely were disappointed, as Bitcoin rallied 6.3% on Sept. 22 and reached the $19,000.500 resistance. Similar trends are expected to occur on October 13, when Bitcoin trades at $19,000.

Stock markets also responded negatively to the release of inflation data. The tech-heavy Nasdaq Composite Index fell 3%. Following panic selling, Nasdaq lost 2% per day as analysts reiterated their expectation of a 0.75% increase in interest rates by the U.S. Federal Reserve Committee on November.

BlackRock Inc. (BLK), which reported a 16% decrease in profits compared to the previous year, made investors even more bearish. On Oct. 1, financial heavyweights Morgan Stanley (MS), and JPMorgan Chase, (JPMorgan Chase) will report.

Contrary to the appeal of Joe Biden, the U.S. President issued a rare statement by the Ministry of Foreign Affairs on October 13 in which it defended the Organization of the Petroleum Exporting Countries production cuts. The White House wanted to postpone the decision until after midterms. The oil producer group decided to reduce the supply target by 2,000,000 barrels per day starting in November.

These developments have increased investors’ bearish feelings. To get a better idea of what is happening in crypto, traders can look at derivatives data. This will show if investors were surprised by the 4.4% drop below $18,200.

For the past month, futures markets were bearish

Because of the price difference between spot and quarterly futures, retail traders tend to avoid them. Professional traders prefer them because they avoid the fluctuation in funding rates that can often occur in perpetual futures contracts.

Annualized premium for Bitcoin 3-month futures. Source: Laevitas

To cover risks and costs, the indicator should trade at an annualized premium of 4% to 8.8% in healthy markets. The Bitcoin futures premium has remained below 1 percent, so derivatives traders were neutral to bearish over the last month.

This data shows professional traders’ reluctance to take on leveraged long (bull), positions, despite their low cost. To exclude any externalities, however, it is important to analyze the Bitcoin options markets.

Option traders won’t offer downside protection

The 25% delta skew indicates that arbitrage desks and market makers are charging too much for protection. In bear markets, options investors offer higher odds of a price dump, which causes the skew indicator above 12%. Bullish markets, on the other hand, tend to lower the skew indicator below negative 12 percent, so bearish put options can be discounted.

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

Since Oct. 10, the 30-day delta skew was above the threshold of 12%, which indicated that options traders were less likely to offer downside protection. These two indicators suggest that the Bitcoin price drop on Oct. 13 may have been partly anticipated, explaining the low impact on liquidations.

More important, bearish sentiment prevailed even after CPI inflation was declared. Whales and markers are therefore less likely to add leverage longs, or provide downside protection. The odds favor the bears, given the current weak macroeconomic conditions and the global political tension.

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Eileen Wilson

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 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.

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