Crisis

Bitcoin derivatives data shows bulls positioning for further BTC price upside

BTC price continues to show strength, and derivatives data suggests that bulls intend to press Bitcoin higher.

Bitcoin (BTC) price maintained the $30,000 support as lower-than-expected U.S. Consumer Price Index (CPI) data was released on April 12. The official inflation rate for March increased 5% year on year, which was slightly less than the 5.1% consensus. It was the lowest reading since May 2021 but is still significantly higher than the U.S. Federal Reserve’s 2% target.

The data suggests that inflation is no longer the driving force behind Bitcoin’s rally, and investors’ focus has shifted from the impact of inflationary pressure to potential recession risks after the banking crisis revealed how fragile the financial system was following the Federal Reserve’s 12-month hike in interest rates from 0.10% to 4.85%.

Aside from the Silicon Valley Bank bankruptcy and the government-backed sale of Credit Suisse to UBS, several warning signs of a macroeconomic downturn have emerged.

The most recent ISM Purchasing Managers Index data fell to its lowest level since May 2020, indicating an economic contraction. According to Federal Reserve documents released on April 12, the aftermath of the U.S. banking crisis is likely to push the economy into a “mild recession” later this year. Because of the crisis, some have speculated that the Fed will hold off on raising interest rates, but officials affirmed that more effort is needed to keep inflation under control.

According to a Moody’s Analytics report, commercial real estate prices fell 1.6% in February, the most since the 2008 financial crisis. Furthermore, the national office vacancy rate reached 16.5%, indicating the severity of the economic difficulties that businesses are currently facing.

Whatever the reason for Bitcoin’s 50% rally between March 11 and April 11, it demonstrates resilience to FUD — fear, uncertainty and doubt — including the Securities and Exchange Commission’s Wells notice against Coinbase on March 22 and the Commodity Futures Trading Commission filing a suit against Binance and its CEO, Changpeng Zhao, on March 27. By holding the $30,000 support, Bitcoin demonstrates that the positive momentum can continue regardless of whether inflation remains above 5%.

Bulls are better positioned for the weekly BTC options expiry

Not everyone is cheering the rally, particularly traders who have placed bearish bets using Bitcoin options. The April 14 open interest for BTC options expiry is $950 million, with $490 million in call (buy) options and $460 million in put (sell) options. Bears have been caught off guard, with less than 7% of their bets exceeding $29,000.

*Bitcoin options aggregate open interest for April 14. Source: CoinGlass*

Below are the four most likely scenarios based on the current price action. The number of call (buy) and put (sell) options contracts available on April 14 varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $28,000 and $29,000: 2,600 calls vs. 1,800 puts. The net result is balanced between call and put options.
Between $29,000 and $30,000: 6,700 calls vs. 500 puts. The net result favors the call (buy) instruments by $110 million.
Between $30,000 and $30,500: 8,500 calls vs. 200 puts. Bulls increase their advantage to $250 million.
Between $30,500 and $31,500: 11,300 calls vs. 100 puts. Bulls’ advantage increases to $350 million.

This rough estimate considers only call options in bullish bets and put options in neutral-to-bearish trades. Nonetheless, this oversimplification excludes more complex investment strategies. A trader, for example, could have sold a put option, effectively gaining positive exposure to Bitcoin above a certain price, but this effect is difficult to estimate.

Bears are unlikely to reverse their situation

Bulls are expected to push Bitcoin above $30,500 on April 14 at 8:00 am UTC to profit an additional $100 million. Bears, on the other hand, would need to pressure Bitcoin’s price below $29,000 in order to balance the scales. However, bears recently suffered significant losses as BTC futures short contracts were forcibly liquidated to the tune of $128 million between April 9 and April 11.

As the most likely scenario favors Bitcoin bulls, their profits will most likely be used to reinforce the $30,000 support. Bears might consider licking their wounds and waiting for additional actions from regulators, as the macroeconomic scenario is currently bullish for supply-capped assets.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Bitcoin holds $30K, but some pro traders are skeptical about BTC price continuation

BTC traders are cautiously optimistic due to Bitcoin traditional assets, but there are still some macro headwinds to be aware of.

Bitcoin (BTC) price has finally broken the $30,000 level after the key price zone lasted as a ten months resistance level. BTC price rallied 6.5% on April 10 and the much-awaited price gain ended an agonizing 12-day period of extremely low volatility, which saw the price hovering close to $28,200. Bulls are now confident that the bear market has officially ended, especially considering the fact that BTC price has gained 82% year-to-date.

Another interesting note is that Bitcoin’s decoupling from traditional markets has been confirmed after the S&P 500 index presented a mere 0.1% gain on April 10, and West Texas Intermediate (WTI) oil traded down 1.2%. Bitcoin traders are likely anticipating the Federal Reserve’s interest rate policy to reverse sooner than later.

Stagflation risk could be behind the decoupling

Higher interest rates make fixed-income investments more attractive, while businesses and families face additional costs to refinance their debts. The reversal of the U.S. central bank’s recent tightening movement is deemed bullish for risk assets. However, the fear of stagflation — a period of increased inflation and negative economic growth — would be the worst-case scenario for the stock market.

Fixed-income traders are betting that the Federal Reserve probably has one more interest-rate hike because the latest economic data displayed moderate resilience. For instance, the 3.5% U.S. unemployment rate announced on April 7 is the lowest measure in half a century.

The U.S. treasuries market suggests a 76% chance that the Federal Reserve will bolster the benchmark by 0.25% on April 29, according to Bloomberg. There’s also the added uncertainty of the banking crisis’s impact on the sector, with JPMorgan Chase, Wells Fargo and Citigroup scheduled to report first-quarter results on Friday.

Bitcoin’s rally above $30,000 could be the first evidence of a shift in investors’ perception from a risk market proxy to a scarce digital asset that might benefit from a period of inflation pressure and weak economic growth.

Two critical factors will determine whether the rally is sustainable: the high leverage usage increasing the odds of forced liquidations during normal price fluctuations, and whether or not pro traders are pricing higher odds of a market downturn using options instruments.

Bitcoin futures show modest improvement

Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.

As a result, futures contracts in healthy markets should trade at a 5-to-10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Bitcoin 2-month futures annualized premium. Source: Laevitas.ch*

Bitcoin traders have been cautious in the past few weeks, and even with the recent breakout above $30,000, there has been no surge in demand for leverage longs. However, the Bitcoin futures premium has slightly improved from its recent low of 3% on April 8 to its current level of 4.2%. This suggests that buyers are not using excessive leverage and there is effective demand on regular spot markets, which is healthy for the market.

Bitcoin option traders remain neutral

Traders should also analyze options markets to understand whether the recent correction has caused investors to become more optimistic. The 25% delta skew is a telling sign when arbitrage desks and market makers overcharge for upside or downside protection.

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 7%, and phases of excitement tend to have a negative 7% skew.

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

Currently, the options delta 25% skew has shifted from a balanced demand between call and put options on April 9 to a modest 4% discount for protective puts on April 10. While this indicates a slight increase in confidence, it is not enough to break the 7% threshold for moderate bullishness.

In essence, Bitcoin options and futures markets suggest that pro traders are slightly more confident, but not excessively optimistic. The initial decoupling from traditional markets is promising because investors are showing confidence that crypto markets will benefit from higher inflationary pressure and it highlights traders’ belief the Fed can no longer continue raising interest rates.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

$1.12B in Bitcoin options expire this week, and bulls appear to be at a disadvantage

Commodities rallied as the United States Treasury struggled with the banking crisis, but Bitcoin bulls also overplayed their hand in this week’s options expiry.

Bitcoin’s (BTC) 43% rally between March 10 and March 20 surprised options traders and this is proven by the minimal14% of the $1.12 billion open interest set to expire on April 7 being placed at $28,000 and higher.

The positive price movement can be partially attributed to an increase in commodity demand, as investors perceive risks in the central bank’s emergency funding programs, as injecting liquidity causes inflationary upward pressure.

According to Urban Angehrn, CEO of the Swiss Financial Market Supervisory Authority (FINMA), if Credit Suisse had not been rescued, “many other Swiss banks would probably have faced a run on deposits.” Angehrn added that “there was a high probability that the resolution of a global systemically important bank would have led to contagion effects and jeopardized financial stability in Switzerland and globally.”

Investors’ appetite for commodities vastly increased after the U.S. Treasury Department reportedly discussed the possibility of expanding the Federal Deposit Insurance Corporation insurance for bank deposits on March 21. Oil prices measured by the WTI have rallied 23.5% since March 20, and gold broke above $2,000 on April 5 — its highest daily close since Aug. 2020.

An unexpected shockwave on a $33 trillion asset class that was previously thought to be a safe haven for inflation could have benefited the commodity sector as well. Morgan Stanley Wealth Management has issued a warning about the commercial real estate market, predicting trouble with refinancing.

According to the bank’s report, the sector has been hard hit by increases in remote work and corporate layoffs, resulting in vacancy rates reaching a 20-year high. As a result, investment bank strategists predict a 40% drop in commercial real estate prices and state that “more than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points.”

Bitcoin bulls may have benefited from increased demand for inflation protection, but some may have squandered the opportunity by placing size bets of $30,000 or higher.

Bulls placed 85% more bets, which did not translate to victory

The weekly BTC options expiry has $1.2 billion in open interest, but the actual figure will be lower because bulls have concentrated their bets on Bitcoin price trading above $29,000.

*Bitcoin options aggregate open interest for April 7. Source: CoinGlass*

The 1.85 call-to-put ratio reflects the difference in open interest between the $720 million call (buy) options and the $390 million put (sell) options. However, the outcome will be much lower as bulls were overly optimistic.

For instance, if Bitcoin’s price remains near $28,100 on April 7 at 8:00 am UTC, there will be only $125 million in call options. This distinction arises since the right to buy Bitcoin at $29,000 or $30,000 is rendered void if BTC trades below that on the expiry.

Bulls and bears have similar incentives, so the outcome is unpredictable

Below are the four most likely scenarios based on the current price action. The number of options contracts available on April 7 for call (buy) and put (sell) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $26,000 and $27,000: 300 calls vs. 6,000 puts. The net result favors the put (sell) instruments by $150 million.
Between $27,000 and $28,000: 1,200 calls vs. 3,500 puts. The net result favors the put instruments by $60 million.
Between $28,000 and $29,000: 4,500 calls vs. 1,100 puts. Bulls flip the tables and profit $100 million.
Between $29,000 and $30,000: 8,500 calls vs. 100 puts. Bulls’ advantage increases to $240 million.

This rough estimate considers only put options in bearish bets and call options in neutral-to-bullish trades. Nonetheless, this oversimplification excludes more complex investment strategies. A trader, for example, could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but this effect is difficult to estimate.

The critical level for the weekly expiration is $28,000, but it is impossible to predict the outcome due to increased economic recession risks and market volatility. If bulls are able to secure a $100 million, those funds will most likely be used to further strengthen the support level.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Investors shelter in short-term Treasurys, reducing Bitcoin’s chance of rallying to $30K

Bitcoin price finally broke through the $28,000 mark, but BTC futures and options data suggest some traders are uneasy about the strength of the recent bullish momentum.

The price of Bitcoin (BTC) surpassed $28,000 on March 21, but according to two derivatives metrics, traders aren’t very ecstatic after a 36% gain in eight days. Looking beyond Bitcoin’s stellar performance, there are reasons investors are not fully confident in further price upside. The recent rescue of Credit Suisse, a 167-year-old leading Swiss financial institution, is proof that the current global banking crisis might not be over.

On March 19, Swiss authorities announced that UBS had agreed to acquire rival Credit Suisse in an “emergency rescue” merger in order to avoid further market-shaking turmoil in the global banking sector. The transaction could benefit from more than $280 billion in state and central bank support, which is equivalent to one-third of Switzerland’s gross domestic product. Unfortunately, there is no way to portray this agreement as reassuring or as a sign of strength from financial institutions, including central banks.

The same can be said for the emergency credit lifeline provided by the United States Treasury to protect the banking sector and increase Federal Deposit Insurance Corporation reserves. The “Bank Term Funding Program” (BTFP), launched on March 12, marked a return to Fed liquidity injections, reversing the trend initiated in June 2022, when the Federal Reserve began monthly asset sales.

The global banking crisis prompted the Fed to abandon its inflation-control policies

By lending $300 billion in emergency funds to banks, the Fed completely reversed its strategy to curb inflation, which has been above 5% year-over-year since June 2021, whereas the target is 2%. This strategy, known as tightening, included increasing interest rates and reducing the $4.8 trillion in assets the Federal Reserve accumulated from March 2020 to April 2022.

On March 20, First Republic Bank (FRB) saw its credit ratings downgraded further into junk status by S&P Global, adding to the stress on United States’ regional banks. According to the risk agency, the lender’s recent $30 billion deposit infusion from 11 large banks may not be enough to solve the FRB’s liquidity problems.

Investors in cryptocurrencies are always anticipating a decoupling from the traditional markets. Nonetheless, there are few justifications for an allocation at the moment, especially if coming from corporations, mutual fund managers or wealthy investors. Historically, investors tend to hoard cash positions or short-term government debt instruments during recessionary periods in order to sustain day-to-day operations and possibly be used to purchase bargains.

The yield on six-month U.S. Treasurys, for example, decreased from 5.33% on March 9 to 4.80% on March 20. As investors prepare for the impact of inflation or a recession, or both, this development indicates a greater demand for short-term instruments. The change since March 9 reversed the entire movement from 2023, with the indicator closing 2022 at 4.77%.

Let’s examine Bitcoin derivatives metrics to determine the current market position of professional traders.

Bitcoin derivatives exhibit a balanced demand for long and short positions

Bitcoin quarterly futures are popular among whales and arbitrage desks, which typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement for a longer period.

As a result, futures contracts in healthy markets should trade at a 5%–10% annualized premium — a situation known as “contango,” which is not unique to crypto markets.

*Bitcoin 2-month futures annualized premium. Source: Laevitas*

Since March 15, the BTC futures premium indicator has remained unchanged at 2.2%, indicating no additional demand from leveraged buying activity. Numbers below 5% indicate pessimism, which is not what one would anticipate after price gains of 36% in eight days.

The absence of demand for leverage longs does not necessarily imply a price decline. As a result, traders should investigate Bitcoin’s options markets to learn how whales and market makers value the likelihood of future price movements.

The 25% delta skew is a telling sign showing when market makers and arbitrage desks are overcharging for upside or downside protection. In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 8%. On the other hand, bullish markets tend to drive the skew metric below -8%, meaning the bearish put options are in less demand.

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

The delta skew crossed the neutral -8% threshold on March 19, indicating moderate optimism as neutral-to-bullish call options were in higher demand. The excitement, however, did not last long, as the 25% skew indicator is currently at -8%, which is the edge of a balanced situation. Nonetheless, it is the polar opposite of the previous week, when the skew reached 12% on March 13.

Ultimately, professional Bitcoin traders are not bullish above $26,000. This is not necessarily a bad thing, but unless crypto investors regain confidence, the chances of the cryptocurrency surpassing $30,000 remain extremely remote. A complete breakdown of the banking system would cause investors to flee to safety rather than seek out risk.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Bitcoin futures premium falls to lowest level in a year, triggering traders’ alerts

On March 12, Bitcoin futures traded 5.5% below regular spot exchanges, causing volatility in derivatives markets.

The price of Bitcoin (BTC) increased by 14.4% between March 12-13 after it was confirmed that financial regulators had rescued depositors in the failing Silicon Valley Bank (SVB). The intraday high of $24,610 may not have lasted long, but $24,000 represents a 45% increase year-to-date.

On March 12, U.S. Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell, and Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg issued a joint statement to reassure SVB depositors.

Regulators also announced a systemic risk exception for Signature Bank (SBNY), an intervention designed to compensate depositors for losses incurred by the previous management. Signature Bank was one of the most prominent financial institutions serving the cryptocurrency industry alongside Silvergate Bank, which announced its voluntary liquidation last week.

To avert a larger crisis, the Fed and Treasury devised an emergency program to supplement all deposits at Signature Bank and Silicon Valley Bank with funds from the Fed’s emergency lending authority. According to the regulators’ joint statement, “no losses will be borne by the taxpayer,” although the strategy for deploying Treasury assets is questionable.

The stablecoin USD Coin (USDC) also caused significant turmoil in the cryptocurrency industry after breaking below its 1:1 peg with the U.S. dollar on March 10. The fear grew after the issuing management company Circle confirmed that $3.3 billion in reserves were held at Silicon Valley Bank.

Such an unusual movement caused price distortion across exchanges, prompting Binance and Coinbase to disable the automatic conversion of the USDC stablecoin. The decoupling from $1 bottomed near $0.87 in the early hours of March 11 and was restored to $0.98 after the FDIC’s successful intervention in the SVB crisis was confirmed.

Let’s take a look at Bitcoin derivatives metrics to see where professional traders stand in the current market.

Bitcoin futures metrics flipped to extreme fear

Bitcoin quarterly futures are popular among whales and arbitrage desks. These fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement for a longer period.

As a result, futures contracts in healthy markets should trade at a 5-to-10% annualized premium — a situation known as contango, which is not unique to crypto markets.

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

The chart shows traders had been neutral-to-bearish until March 10 as the basis indicator oscillated between 2.5% and 5%. However, the situation quickly changed in the early hours of March 11 as the stablecoin USDC decoupled and cryptocurrency exchanges were forced to change their conversion mechanisms.

Consequently, the Bitcoin three-month futures premium turned into a discount, otherwise known as backwardation. Such movement is highly unusual and reflects investors’ lack of trust in intermediaries or extreme pessimism towards the underlying asset. Even as the USDC stablecoin price approaches $0.995, the current 0% premium indicates a lack of leverage buying demand for Bitcoin via futures instruments.

Crypto-fiat gateways are key to reclaiming improved market dynamics

By reclaiming the $24,000 support, Bitcoin has restored levels unseen since the Silvergate Bank stock price collapse on March 1 after the delayed filing of its annual 10-K financial report. Moreover, crypto exchanges and stablecoin providers were forced to suspend U.S. dollar deposits, with the closure of Signature Bank affecting Okcoin.

Banking options for crypto firms, including exchanges, are likely to become more limited as traditional banks remain wary of the sector. According to some analysts, U.S. regulators are purposefully discouraging major banks from doing business with cryptocurrency exchanges.

Fiat gateway on and off ramps are critical for stablecoins, market markers and cryptocurrency exchanges for a variety of reasons. The ability to convert Bitcoin to cash and vice versa is critical for their day-to-day operations, so the longer it takes to find new banking partners, the more difficult it is for stablecoins to allow redemptions and exchanges in order to maintain a high level of liquidity.

Derivatives metrics may have recovered from the initial banking crisis contagion risk, but they still indicate Bitcoin bulls’ lack of confidence in a long-term recovery.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.