Long the Bitcoin bottom, or watch and wait? Bitcoin traders plan their next move

Bitcoin (BTC), which traded at $18,270, saw a 9% correction during the morning hours of Sept. 19. Although the price recovered quickly to $19,000, it was still the lowest level in three months. Pro traders remained firm and did not want to accept the loss as calculated by derivatives contracts.

Price index for Bitcoin/USD, 2 hours Source: TradingView

It is difficult to pinpoint the reason behind the crash, but some believe that the interview of Joe Biden, the United States President, on CBS’ “60 Minutes”, raised concerns about global war. Biden responded to the question of whether U.S. forces would protect Taiwan in case of an invasion by China.

Some others cite China’s central banking as having lowered the borrowing cost for 14-day reverse purchase agreements to 2.15%, from 2.25%. Inflationary pressure is causing the monetary authority to show weakness by injecting more money into the economy to stimulate it.

The U.S. Federal Reserve Committee meeting scheduled for Sept. 21 is under pressure. It is expected that they will increase interest rates by 0.75 percent as central bankers try to reduce inflationary pressure. The 5-year Treasury note yields soared to 3.7%, their highest level since November 2007.

Let’s take a look at crypto derivatives data and see if professional investors changed their positions after Bitcoin fell below $19,000

The 9% crash had no effect on BTC derivatives metrics

Because of the price differential between spot and quarterly markets, retail traders tend to avoid them. However, they are preferred instruments by professional traders because they prevent fluctuation in funding rates which is often a problem with 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. As the Bitcoin futures premium remained below 2%, it can be safely said that derivatives traders were neutral to bearish over the past two weeks.

Importantly, the indicator’s value of 0.5% did not change significantly after the September 19 shakeout. This is a result of professional traders’ inability to add leveraged short positions (bears) at current price levels.

To exclude any externalities that are specific to Bitcoin futures instruments, one must also examine the Bitcoin options. The 25% delta skew, for example, is a sign that arbitrage desks and market makers are charging too much to protect upside or downside.

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

Options investors are more likely to be able to predict a price dump in bear markets. This causes the skew indicator above 12%. Bullish trends, on the other hand, tend to lower the skew indicator below negative 12 percent, which means bearish put options can be discounted.

Since Sept. 15, the 30-day delta skew was close to the threshold of 12%, which indicated that options traders were less likely to offer downside protection. The indicator is currently at 11% despite the negative price movement on Sept. 19.

Related: Bitcoin and Ethereum crashes continue as US 10-year Treasury yields surpass June high

It is possible to reach the bottom, but this depends on global and macroeconomic hurdles

The derivatives metrics indicate that the Bitcoin price drop on Sept. 19, was partly expected. This explains why $19,000 support was regained within less than two hours. All of this won’t matter if the U.S. Federal Reserve raises interest rates beyond the consensus or if stock market collapses further because of the energy crisis and political tensions.

Before trying to pinpoint the bottom of the bear market, traders need to continuously monitor macroeconomic data and the attitude of central banks. The odds of Bitcoin reaching sub-$18,000 are high given the low demand for leverage longs on BTC Futures.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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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 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.

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