derivatives

Ethereum price dips below the $1.8K support as bears prepare for Friday’s $1B options expiry

Looming macroeconomic concerns and this week’s $1B ETH options expiry threaten to pin Ethereum price under the $1,800 support.

Ether’s (ETH) performance over the past three months has been less than satisfying for holders and the 50% correction since April 3 caused the altcoin to test the $1,800 support for the first time since July 2021.

Ether/USD 1-day chart at Kraken. Source: TradingView

Due to the volatility in stocks, investors had been seeking shelter in the United States dollar and on May 13, the DXY index reached its highest level in 20 years. DXY measures the USD against a basket of major foreign currencies, including the British pound (GBP), the euro (EUR) and the Japanese yen (JPY).

Moreover, the five-year U.S. Treasury yield reached its highest level since August 2018, trading at 3.10% on May 9 and signaling that investors demand larger returns to compensate for inflation. In a nutshell, macroeconomic data reflects risk-averse sentiment from investors and this partially explains Ether’s downturn.

Further creating panic among Ether traders was a seven-block chain reorg on Ethereum’s Beacon Chain on May 25. A valid transaction sequence was knocked off the chain due to a competing block getting more support from network participants. Fortunately, this situation is not uncommon and it might have emerged from a miner with high resources or a bug.

The main victims of Ether’s 11% price correction were leverage traders (longs) who saw $160 million in aggregate liquidations at derivatives exchanges, according to data from Coinglass.

Bulls placed their bets at $2,100 and higher

The open interest for the Ether’s May monthly options expiry is $1.04 billion, but the actual figure will be much lower since bulls were overly-optimistic. These traders might have been fooled by the short-lived pump to $2,950 on May 4 because their bets for the May 27 options expiry extend beyond $3,000.

The drop below $1,800 took bulls by surprise because virtually none of the call (buy) options for May 27 have been placed below that price level.

Ether options aggregate open interest for May 27. Source: CoinGlass

The 0.94 call-to-put ratio shows the slight dominance of the $540 million put (sell) open interest against the $505 million call (buy) options. Nevertheless, as Ether stands near $1,800, every bullish bet is likely to become worthless.

If Ether’s price remains below $1,800 at 8:00 am UTC on May 27, none of the $505 million call options will be available. This difference happens because a right to buy Ether at $1,800 or higher is worthless if Ether trades below that level on expiry.

Bears aim for a $325 million profit

Below are the three most likely scenarios based on the current price action. The number of options contracts available on May 27 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $1,600 and $1,700: 0 calls vs. 230,000 puts. The net result favors the put (bear) instruments by $370 million.
  • Between $1,700 and $1,800: 50 calls vs. 192,300 puts. The net result favors bears by $325 million.
  • Between $1,800 and $2,000: 3,300 calls vs. 150,000 puts. The net result favors the put (bear) instruments by $280 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.

For instance, a trader could have sold a put option, effectively gaining positive exposure to Ether above a specific price, but unfortunately, there’s no easy way to estimate this effect.

Bulls should throw the towel and focus on the June expiry

Ether bears need to sustain the price below $1,800 on May 27 to secure a $325 million profit. On the other hand, the bulls’ best case scenario requires a push above $1,800 to reduce the damage by $45 million.

Ether bulls had $160 million leverage long positions liquidated on May 26, so they should have less margin to drive the price higher. With this said, bears will undoubtedly try to suppress Ether below $1,800 ahead of the May 27 options expiry.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Bitcoin creeps toward $30K, but data shows bears in favor for Friday’s $1.8B BTC options expiry

Traders are calling for a “relief rally” to $35,000, but derivatives data shows bears stand to profit from this week’s $1.81 billion BTC options expiry.

Bitcoin (BTC) price has been unable to close above $32,000 for the past fifteen days and is currently down 37% year-to-date. Although that might seem excessive, it does not stand out among some of the largest U.S.-listed tech companies that have also sustained notable losses recently. 

In this same 15-day period, Shopify Inc. (SHOP) stock dropped 76%, Snap Inc. (SNAP) crashed 73%, Netflix (NFLX) is down 70% and Cloudflare (NET) presented a negative 62% performance.

Cryptocurrency investors should be less concerned about the current “bear market” considering Bitcoin’s 79% annualized volatility. However, that is clearly not the case, because Bitcoin’s “Fear and Greed Index” reached an 8 out of 100 on May 17, the lowest level since March 2020.

Traders fear that worsening macroeconomic conditions could cause investors to seek shelter in the U.S. dollar and Treasuries. Japan’s industrial production data released on May 18 showed a 1.7% contraction year-over-year. Moreover, May 20 retail sales data from the United Kingdom showed a 4.9% decline versus 2021.

Financial analysts across the globe blame the weakened market conditions on the U.S. Federal Reserve’s slow reaction to the inflation surge. Thus, traders increasingly seek shelter outside of riskier assets, which negatively impacts Bitcoin price.

Bulls placed most bets above $40,000

The open interest for the monthly May 27 options expiry in Bitcoin is $1.81 billion, but the actual figure will be lower since bulls were caught by surprise as the BTC price has fallen 26% in the last 30 days.

Bitcoin options aggregate open interest for May 27. Source: CoinGlass

The 1.31 call-to-put ratio reflects the $1.03 billion call (buy) open interest against the $785 million put (sell) options. Nevertheless, 94% of the bullish bets will likely become worthless as Bitcoin currently trades near $30,000.

If Bitcoin’s price remains below $31,000 on May 27, bulls will only have $60 million worth of these call (buy) options available. This difference happens because there is no use in a right to buy Bitcoin at $31,000 if it trades below that level on expiry.

Related: Low inflation or bust: Analysts say the Fed has no choice but to continue raising rates

Bears can secure a $390 million profit on May 27

Below are the three most likely scenarios based on the current price action. The number of options contracts available on May 27 for call (buy) and put (sell) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $28,000 and $30,000: 800 calls (buy) vs. 14,200 puts (sell). The net result favors bears by $390 million.
  • Between $30,000 and $32,000: 2,050 calls (buy) vs. 11,200 puts (sell). Bears have a $250 million advantage.
  • Between $32,000 and $33,000: 5,650 calls (buy) vs. 9,150 puts (sell). The net result favors bears by $110 million.

This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.

Bitcoin bears need to sustain the price below $30,000 on May 27 to profit $390 million from the monthly options expiry. On the other hand, bulls can reduce their loss by pushing BTC above $32,000, an 8% rally from the current $29,700 price. However, judging by the bearish macroeconomic conditions, bears seem better positioned for May 27 expiry.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Bitcoin’s current setup creates an interesting risk-reward situation for bulls

A slight improvement in equities markets and the resilience of a few key BTC price metrics are giving bulls hope of a reversal.

The Bitcoin (BTC) chart has formed a symmetrical triangle, which currently holds a tight range from $28,900 to $30,900. This pattern has been holding for nearly two weeks and could potentially extend for another two weeks before price makes a more decisive movement.

Bitcoin/USD 12-hour price at Kraken. Source: TradingView

For those unfamiliar with technical analysis, a symmetrical triangle can be either bullish or bearish. In that sense, the price converges in a series of lower peaks and higher lows. The decisive moment is the support or resistance breakthrough when the market finally decides on a new trend. Thus, the price could break out in either direction.

According to Bitcoin derivatives data, investors are pricing higher odds of a downturn, but recent improvements in global economic perspective might take the bears by surprise.

The macro scenario has improved and BTC miners are staying busy

According to Cointelegraph, macroeconomic conditions driven by the United States helped drive crypto markets higher on May 23. Before the market opened, United States President Joe Biden announced plans to cut trade tariffs with China, boosting investors’ morale.

According to the latest estimates, Bitcoin’s network difficulty will reduce by 3.3% at its next automated readjustment this week. The change will be the largest downward shift since July 2021 and it’s clear that Bitcoin’s downtrend has challenged miners’ profitability.

Still, miners are not showing signs of capitulation even as their wallets’ movements to exchanges hit a 30-day low on May 23, according to on-chain analytics platform Glassnode.

While miners’ sentiment and flows are important, traders should also track how whales and market markers are positioned in the futures and options markets.

Bitcoin derivatives metrics are neutral-to-bearish

Retail traders usually avoid quarterly futures due to their fixed settlement date and price difference from spot markets. However, the contracts’ biggest advantage is the lack of a fluctuating funding rate; hence, the prevalence of arbitrage desks and professional traders.

These fixed-month contracts usually trade at a slight premium to spot markets because sellers are requesting more money to withhold settlement longer. This situation is known technically as “contango” and is not exclusive to crypto markets. Thus, futures should trade at a 5% to 15% annualized premium in healthy markets.

Bitcoin 3-month futures’ annualized premium. Source: Laevitas

According to the above data, Bitcoin’s basis indicator has been below 4% since April 12. This reading is typical of bearish markets, but the fact that it has not deteriorated after the sell-off down to $25,400 on May 12 is encouraging.

To exclude externalities specific to the futures instrument, traders also have to analyze Bitcoin options markets. The 25% delta skew is extremely useful because it shows when Bitcoin arbitrage desks and market makers are overcharging for upside or downside protection.

If option investors fear a Bitcoin price crash, the skew indicator will move above 12%. On the other hand, generalized excitement reflects a negative 12% skew.

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

The skew indicator moved above 12% on May 9, entering the “fear” level as options traders overcharged for downside protection. Moreover, the recent 25.4% was the worst reading ever registered for the metric.

Related: Bitcoin targets record 8th weekly red candle while BTC price limits weekend losses

Be brave when most are fearful

In short, BTC options markets are still stressed and this suggests that professional traders are not confident in taking downside risk. Bitcoin’s futures premium has been somewhat resilient, but the indicator shows a lack of interest from leveraged long buyers.

Taking a bullish bet might seem contrarian right now, but at the same time, an unexpected price pump would take professional traders by surprise. Therefore, it creates an interesting risk-reward situation for Bitcoin bulls.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision

Here’s why bears aim to keep Bitcoin under $29K ahead of Friday’s $640M BTC options expiry

Bitcoin is holding the $30,000 level, but the $640 million in BTC options that expire on May 20 could result in the price visiting recent lows.

Over the past nine days, Bitcoin’s (BTC) daily closing price fluctuated in a tight range between $28,700 and $31,300. The May 12 collapse of TerraUSD (UST), previously the third-largest stablecoin by market cap, negatively impacted investor confidence and the path for Bitcoin’ price recovery seems clouded after the Nasdaq Composite Stock Market Index plunged 4.7% on May 18.

Disappointing quarterly results from top United States retailers are amping up recession fears and on May 18, Target (TG) shares dropped 25%, while Walmart (WMT) stock plunged 17% in two days. The prospect of an economic slowdown brought the S&P 500 Index to the edge of bear market territory, a 20% contraction from its all-time high.

Moreover, the recent crypto price drop was costly to leverage buyers (longs). According to Coinglass, the aggregate liquidations reached $457 million at derivatives exchanges between May 15 and 18.

Bulls placed bets at $32,000 and higher

The open interest for the May 20 options expiry is $640 million, but the actual figure will be much lower since bulls were overly-optimistic. Bitcoin’s recent downturn below $32,000 took buyers by surprise and only 20% of the call (buy) options for May 20 have been placed below that price level.

Bitcoin options aggregate open interest for May 20. Source: CoinGlass

The 0.66 call-to-put ratio reflects the dominance of the $385 million put (sell) open interest against the $255 million call (buy) options. However, as Bitcoin stands near $30,000, most put (sell) bets are likely to become worthless, reducing bears’ advantage.

If Bitcoin’s price remains above $29,000 at 8:00 am UTC on May 20, only $160 million worth of these put (sell) options will be available. This difference happens because a right to sell Bitcoin at $30,000 is worthless if BTC trades above that level on expiry.

Sub-$29K BTC would benefit bears

Below are the three most likely scenarios based on the current price action. The number of options contracts available on May 20 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $28,000 and $29,000: 300 calls vs. 7,100 puts. The net result favors the put (bear) instruments by $190 million.
  • Between $29,000 and $30,000: 600 calls vs. 5,550 puts. The net result favors bears by $140 million.
  • Between $30,000 and $32,000: 1,750 calls vs. 3,700 puts. The net result favors the put (bear) instruments by $60 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.

Bulls have little to gain in the short-term

Bitcoin bears need to pressure the price below $29,000 on May 20 to secure a $190 million profit. On the other hand, the bulls’ best case scenario requires a push above $30,000 to minimize the damage.

Considering Bitcoin bulls had $457 million in leveraged long positions liquidated between May 15 and 18, they should have less margin required to drive the price higher. Thus, bears will try to suppress BTC below $29,000 ahead of the May 20 options expiry and this decreases the odds of a short-term price recovery.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Lost SOL? Persistent challenges continue to impact Solana price

SOL price has been repeatedly knocked down by network outages, a shrinking total value locked on the network and futures traders’ disinterest in trading the altcoin.

The past thirty days have been an extremely bearish time for cryptocurrencies. The sector’s aggregate market capitalization plunged 33% to $1.31 trillion and Solana’s (SOL) downfall has been even more brutal. Currently, SOL has seen a 50% correction and trades at $51.

Solana/USD price at Coinbase (blue) vs. altcoin capitalization (orange). Source: TradingView

The network aims to overcome the Ethereum blockchain’s scalability problem by incorporating a proof-of-history (PoH) mechanism into a proof-of-stake (PoS) blockchain. With PoH, Solana delegates a central node to determine a transaction time that the entire network can agree on.

The low fees delivered by the Solana network have enticed developers and users alike, but the frequent network outages continue to cast doubt on the centralization issue and it has likely scared away some investors.

Pinning the underperformance exclusively to the 7-hour network outage on April 30 seems too simplistic, and it doesn’t explain why the decoupling started a month earlier. According to Solana Labs, the issue was caused by bots initiating numerous transactions on Metaplex, a nonfungible token (NFT) marketplace built on Solana.

The transaction volume surpassed six million per second during its peak, overflowing individual nodes and as a consequence, validators ran out of data memory which led to a loss of consensus and network interruption.

To mitigate the issue, developers introduced three steps: a change in the data transfer protocol, stake-weighted transaction processing and “fee-based execution priority.”

TVL and the number of active addresses dropped

Solana’s main decentralized application metric started to display weakness earlier in November after the network’s total value locked (TVL), which measures the amount deposited in its smart contracts, repeatedly failed to sustain levels above 60 million SOL.

Solana network Total Value Locked, SOL. Source: Defi Llama

However, the 50% price correction has other factors than just a reduced TVL. To confirm whether DApp use has effectively decreased, investors should also analyze the number of active addresses within the ecosystem.

Solana dApps 7-day on-chain data. Source: DappRadar

May 18 data from DappRadar shows that the number of Solana network addresses interacting with the top-7 decentralized applications dropped, except for the DEX exchange Orca. The reduced interest in Solana DApps was also reflected in SOL’s futures markets.

Solana futures aggregate open interest. Source: Coinglass

The above chart shows how Solana futures open interest declined by 22% in the past month to the current $510 million. That is especially concerning because a smaller number of futures contracts might reduce the activity of arbitrage desks and market makers.

SOL is likely to experience more pain

It’s probably impossible to pinpoint the exact reason for Solana’s price drop, but centralization issues after multiple network outages, a decrease in the network’s DApps use and fading interest from derivatives traders are three factors contributing to the decline.

The data reviewed in this article suggests that Solana holders should not expect a price bounce anytime soon because the network health metrics remain under pressure. There’s no doubt that Solana Labs has been working to reduce its dependence on the networks’ validators, but at the same time, investors want to avoid centralized projects.

Should the sentiment start to improve, there should be an inflow of deposits, increasing Solana’s TVL and the number of active addresses. As long as these indicators continue to deteriorate, there’s no way to predict a price bottom for SOL.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Dutch regulator says crypto not yet suitable as means of payment or investment

Paul-Willem van Gerwen from the AFM believes that retail investors should forbear the crypto derivatives trade.

A Dutch regulator stated that the crypto derivatives market should be restricted to wholesale trade. The reasons are not unfamiliar — lack of transparency, market manipulation and “other forms of criminal activity.”

On Thursday, the head of Capital Markets and Transparency Supervision at the Dutch Authority for Financial Markets (AFM), Paul-Willem van Gerwen, shared his opinion on the crypto derivatives trade at the Amsterdam Propriety Traders Managers Meeting.

Van Gerwen highlighted, that despite (or perhaps because of) the market’s rising interest in crypto derivatives trading, the AFM regards “such trade as entailing risks” and considers this market to be less mature than other derivatives markets. A specific problem arising from the volatility of the crypto products, according to van Gerwen, leads to a question of whether “the parties to the derivative transaction will be in a position to fulfill their promises.”

Hence, the AFM believes that operations with crypto derivatives should be restricted to the wholesale trade. The official acknowledged that, unlike its British counterparts from the Financial Conduct Authority (FCA), the AFM has not banned such trade, but alluded that it surely might do so:

“Don’t get caught up in the excitement of this trading, don’t let yourself be tempted into retail trading.”

He also added, “Cryptos and derived tools aren’t yet suitable as a means of payment and/or investment.”

Another topic van Gerwen mentioned in his speech was the distributed ledger’s impact on clearing. At this, he sounded much more optimistic, acknowledging the advantages of using the blockchain in clearing operations, but, yet again, was cautious while commenting on the industry’s possible role:

“In principle, proprietary traders don’t get involved in clearing. And yet the technological developments could lead to a situation in which a peer-t-peer model arises, with proprietary traders possibly starting to engage in clearing themselves.”

Further reading: Binance reportedly halts crypto derivatives service in Spain

The speaker encouraged the attendees to take part in tDLT pilot cases that the Dutch financial authorities are managing in a Sandbox environment.

In August 2021, the Central Bank of the Netherlands issued a warning to Binance for offering crypto services without the required legal registration.

BitMEX launches spot crypto exchange following $30M penalty

Founded in 2014, BitMEX is one of the world’s oldest crypto trading platforms, but it has never offered spot crypto trading till now.

Global crypto derivatives exchange BitMEX is expanding its platform beyond just derivatives by finally launching a spot crypto trading platform.

BitMEX officially announced on May 17 that its spot crypto exchange, the BitMEX Spot Exchange, is now live, allowing retail and institutional investors to buy, sell and trade cryptocurrencies like Bitcoin (BTC) and Ether (ETH).

At launch, the exchange supports seven pairs of cryptocurrencies, including BTC, ETH, Chainlink (LINK), Uniswap (UNI), Polygon (MATIC), Axie Infinity (AXS) and ApeCoin (APE), all trading against the Tether stablecoin (USDT).

The launch of the BitMEX Spot Exchange comes as the company plans to become one of the top ten largest spot exchanges in the world. The company decided to build its own spot exchange last year in response to the increasing crypto trading demand from its current user base, according to the announcement.

“Today, BitMEX is one step closer to providing our users with a full crypto ecosystem to buy, sell and trade their favorite digital assets. We will not rest as we aim to deliver more features, more trading pairs, and more ways for our clients to take part in the crypto revolution,” BitMEX CEO Alexander Höpner said.

Founded in 2014, BitMEX is one of the world’s largest and oldest crypto trading companies and started to provide its services about six years after Bitcoin was launched. Unlike spot exchanges, BitMEX has been mainly focusing on derivatives, allowing users to buy and sell contracts like futures, options and perpetuals on a wide range of crypto assets.

At the time of writing, BitMEX is one of the top 30 biggest derivatives crypto trading platforms, with daily trading volume amounting to $841 million, according to data from CoinMarketCap. BitMEX was ranked one of the biggest derivatives platforms by open interest alongside Binance as of 2020.

BitMEX has faced some legal issues recently, with founders Arthur Hayes and Hong Konger Benjamin Delo pleading guilty to violating the Bank Secrecy Act in February 2022. The court eventually ordered a total of $30 million civil monetary penalties from the three co-founders of the BitMEX crypto derivatives exchange in March.

Related: The Brazilian Stock Exchange will launch Bitcoin and Ethereum futures

The firm also reportedly laid off about 75 employees — or a quarter of the company’s staff — in April, following a failed acquisition of the German bank Bankhaus von der Heyd.

BitMEX did not immediately respond to Cointelegraph’s request for comment. This article will be updated pending new information.

Bitcoin bulls aim to flip $30K to support, but derivatives data show traders lack confidence

The BTC futures premium flashed a slightly positive reading, but options markets show extreme fear from whales and market markers.

Bitcoin (BTC) bounced 19% from the $25,400 low on May 12, but has investor confidence in the market been restored? Judging by the ascending channel formation, it’s possible that bulls at least have plans to recover the $30,000 level in the short term.

Bitcoin/USD 4-hour price at Bitstamp. Source: TradingView

Does derivatives data support reclaiming $30,000, or is Bitcoin potentially heading to another leg down after failing to break above $31,000 on May 16?

Bitcoin price falters in the face of regulatory concerns and the Terra debacle

One factor placing pressure on BTC price could be the Luna Foundation Guard (LFG) selling 80,081 Bitcoin, or 99.6%, of their position.

On May 16, LFG released details on the remaining crypto collateral and from one side, this project’s sell-off risk has been eliminated, but investors question the stability of other stablecoins and their decentralized finance (DeFi) applications.

Recent remarks from FTX CEO Sam Bankman-Fried about proof-of-work (PoW) mining environmental and scalability issues further fueled the current negative sentiment. According to Bankman-Fried, the use of proof-of-stake (PoS) consensus is better suited to accommodate millions of transactions.

On May 14, a local United Kingdom newspaper reported the Department of Treasury’s intention to regulate stablecoins across Britain. According to the Treasury spokesman, the plan does not involve legalizing algorithmic stablecoins and instead prefers 1:1 fully-backed stablecoins.

While this news might have impacted market sentiment and BTC price, let’s take a look at how larger-sized traders are positioned in the futures and options markets.

The Bitcoin futures premium is showing resilience

The basis indicator measures the difference between longer-term futures contracts and the current spot market levels. The annualized premium of Bitcoin futures should run between 5% and 10% to compensate traders for “locking in” the money for two to three months until the contract expires. Levels below 5% are bearish, while numbers above 10% indicate excessive demand from longs (buyers).

Bitcoin 3-month futures’ annualized premium. Source: Laevitas

The above chart shows that Bitcoin’s basis indicator moved below the 5% neutral threshold on April 6, but there has been no panic after the sell-off to $25,400 on May 12. This means that the metric is mildly positive.

Even though the basis indicator points to bearish sentiment, one must remember that Bitcoin is down 36% year-to-date and 56% below its $69,000 all-time high.

Related: $1.9T wipeout in crypto risks spilling over to stocks, bonds — stablecoin Tether in focus

Options traders are beyond stressed

The 25% options delta skew is extremely useful because it shows when Bitcoin arbitrage desks and market makers are overcharging for upside or downside protection.

If option investors fear a Bitcoin price crash, the skew indicator will move above 10%. On the other hand, generalized excitement reflects a negative 10% skew.

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

The skew indicator moved above 10% on April 6, entering the “fear” level because options traders overcharged for downside protection. However, the current 19% level remains extremely bearish and the recent 25.5% was the worst reading ever registered for the metric.

Although Bitcoin’s futures premium was resilient, the indicator shows a lack of interest from leverage buyers (longs). In short, BTC options markets are still stressed and suggest that professional traders are not confident that the current ascending channel pattern will hold.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Bitcoin and Ethereum had a rough week, but derivatives data reveals a silver lining

BTC, ETH and altcoin prices were crushed this week, but the futures funding rate shows retail traders are not ready to become permabears.

This week the crypto market endured a sharp drop in valuation after Coinbase, the leading U.S. exchange, reported a $430 million quarterly net loss and South Korea announced plans to introduce a 20% tax on crypto gains.

During its worst moment, the total market crypto market cap faced a 39% drop from $1.81 trillion to $1.10 trillion in seven days, which is an impressive correction even for a volatile asset class. A similar size decrease in valuation was last seen in February 2021, creating bargains for the risk-takers.

Total crypto market capitalization, USD billion. Source: TradingView

Even with this week’s volatility, there were a few relief bounces as Bitcoin (BTC) bounced 18% from a $25,400 low to the current $30,000 level and Ether (ETH) price also made a brief rally to $2,100 after dropping to a near-year low at $1,700.

Institutional investors bought the dip, according to data from the Purpose Bitcoin ETF. The exchange-traded instrument is listed in Canada and it added 6,903 BTC on May 12, marking the largest single-day buy-in ever registered.

On May 12, the United States Treasury Secretary Janet Yellen stated that the stablecoin market is not a threat to the country’s financial stability. In a hearing of the House Financial Services Committee, Yellen added:

“They present the same kind of risks that we have known for centuries in connection with bank runs.”

The total crypto capitalization down 19.8% in seven days

The aggregate market capitalization of all cryptocurrencies shrank by 19.8% over the past seven days, and it currently stands at $1.4 trillion. However, some mid-capitalization altcoins were decimated and dropped more than 45% in one week.

Below are the top gainers and losers among the 80 largest cryptocurrencies by market capitalization.

Weekly winners and losers among the top-80 coins. Source: Nomics

Maker (MKR) benefited from the demise of a competing algorithmic stablecoin. While TerraUSD (UST) succumbed to the market downturn, breaking its peg well below $1, Dai (DAI) remained fully functional.

Terra (LUNA) faced an incredible 100% crash after the foundation responsible for administering the ecosystem reserve was forced to sell its Bitcoin position at a loss and issue trillions of LUNA tokens to compensate for its stablecoin breaking below $1.

Fantom (FTM) also faced a one-day 15.3% drop in the total value locked, the amount of FTM coins deposited on the ecosystem’s smart contracts. Fantom has been struggling since prominent Fantom Foundation team members Andre Cronje and Anton Nell resigned from the project.

Tether premium shows trickling demand from retail traders

The OKX Tether (USDT) premium indirectly measures retail trader crypto demand in China. It measures the difference between China-based USDT peer-to-peer trades and the official U.S. dollar currency.

Excessive buying demand puts the indicator above fair value, which is 100%. On the other hand, Tether‘s market offer is flooded during bearish markets, causing a 2% or higher discount.

Tether (USDT) peer-to-peer vs. USD/CNY. Source: OKX

Currently, the Tether premium stands at 101.3%, which is slightly positive. Furthermore, there has been no panic over the past two weeks. Such data indicate that Asian retail demand is not fading away, which is bullish, considering that the total cryptocurrency capitalization dropped 19.8% over the past seven days.

Related: What happened? Terra debacle exposes flaws plaguing the crypto industry

Altcoin funding rates have also dropped to worrying levels. Perpetual contracts (inverse swaps) have an embedded rate that is usually charged every eight hours. These instruments are retail traders‘ preferred derivatives because their price tends to perfectly track regular spot markets.

Exchanges use this fee to avoid exchange risk imbalances. A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

Seven-day accumulated perpetual futures funding rate. Source: Coinglass

Notice how the accumulated seven-day funding rate is mostly negative. This data indicates higher leverage from sellers (shorts). As an example, Solana‘s (SOL) negative 0.90% weekly rate equals 3.7% per month, a considerable burden for traders holding futures positions.

However, the two leading cryptocurrencies did not face the same leverage selling pressure, as measured by the accumulated funding rate. Typically, when there‘s an imbalance caused by excessive pessimism, that rate can easily move below negative 3% per month.

The absence of leverage shorts (sellers) in futures markets for Bitcoin and Ethereum and the modest bullishness from Asian retail traders should be interpreted as extremely healthy, especially after a -19.8% weekly performance.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

3 reasons why bears aim to pin Bitcoin below $30K for this week’s BTC options expiry

BTC price is in a freefall and data suggests bears plan to keep the price below $30,000 until the May 13 options expiry.

Investors were surprised by Bitcoin (BTC) price falling to $25,500 on May 12, and this shock extended to options traders. The strong correction was not restricted to cryptocurrencies and some large-cap stocks faced 25% or heavier weekly losses in the same period.

Growing economic uncertainty impacted S&P 500 index members like Illumina (ILMN), which declined by 27% over the past seven days and Caesars Entertainment (CZR) faced a 25% drop. Shopify (SHOP), one of the largest Canadian e-commerce companies also saw its stock plunge by 28%.

Traders are scratching their heads and asking whether it’s the U.S. Federal Reserve tightening to blame for the volatility. The monetary authority has been increasing the interest rates and has also reaffirmed their plans to sell bonds and debt-related instruments.

While this may be the case, traders should remember that the stock market rallied 113% between 2017 and 2021, as measured by the S&P 500 index. Keeping that in mind, the recent downturn is also a reflection of excessive valuations and overconfidence from investors.

Fortunately, not everything has been negative for Bitcoin. On May 10, Townsquare Media, a New York-based digital marketing and radio station company, disclosed a $5 million Bitcoin investment. Nubank, the largest digital bank in Brazil and Latin America, also announced that it would allocate roughly 1% of its net assets to Bitcoin.

Bulls were taken by surprise

Bitcoin’s drop to $25,500 on May 12 took bulls by surprise because less than 1% of the call (buy) option bets for May 13 have been placed below this price level.

Bulls might have been fooled by the recent attempt to overtake $40,000 on May 4, because their bets for May 12’s $610 million options are largely concentrated above $34,000.

Bitcoin options aggregate open interest for May 13. Source: Coinglass

A broader view using the 0.90 call-to-put ratio shows a slight advantage for the $320 million put (sell) options versus the $290 million call (buy) instruments. But now that Bitcoin is below $30,000, most of the bullish bets will become worthless.

If Bitcoin’s price remains below $30,000 at 8:00 am UTC on May 13, only $1 million worth of those call (buy) options will be available. This difference happens because there is no use in the right to buy Bitcoin at $30,000 if it trades below this level at expiry.

Bears are aiming for a $260 million profit

The three most likely scenarios based on the current price action are listed below. The number of options contracts available on May 13 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side makes up the theoretical profit:

  • Between $27,000 and $30,000: 0 calls vs. 9,350 puts. The net result favors the put (bear) instruments by $260 million.
  • Between $30,000 and $32,000: 150 calls vs. 7,500 puts. The net result favors bears by $220 million.
  • Between $32,000 and $33,000: 1,100 calls vs. 5,900 puts. The net result benefits put (bear) options by $150 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. Even so, this oversimplification disregards more complex investment strategies.

For instance, a trader could have sold a put option, effectively gaining positive exposure to Bitcoin above a specific price but unfortunately, there is not an easy way to estimate this effect.

Bears have incentives to suppress Bitcoin price

Bitcoin bears need to hold the price below $30,000 on May 13 to secure a $260 million profit. On the other hand, the bulls’ best case scenario requires a 10.7% gain from the current $28,900 to the $32,100 zone to limit their losses to $150 million.

Bitcoin bulls had $1.73 billion in leveraged long positions liquidated over the past three days, so they probably have fewer resources to push the price higher in the short term. With this said, bears have greater odds of suppressing BTC below $30,000 before the May 13 options expiry.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.