derivatives

Bitcoin derivatives data reflects traders’ belief that $20K will become support

Declining interest in margin shorts and a balanced risk perception in options markets highlight a possible path to $21,500 for BTC price.

Bitcoin (BTC) showed strength on Oct. 4 and 5, posting a 5% gain on Oct. 5 and breaking through the $20,000 resistance. The move liquidated $75 million worth of leverage short (bear) positions and it led some traders to predict a potential rally to $28,000.

$BTC #Bitcoin

Shared this descending channel 2 days ago.$BTC has managed to break through the middle line.
Next target = Upper channel trendline = ~21.5k.

In case of a breakout, 28k-30k are possible. pic.twitter.com/dyqMLdcXZ4

— ⓗ (@el_crypto_prof) October 4, 2022

As described by Moustache, the descending channel continues to exert its pressure, but there could be enough strength to test the upper channel trendline at $21,500. The price action coincided with improving conditions for global equity markets on Oct. 4, as the S&P 500 index gained 3.1% and the tech-heavy Nasdaq Composite rallied 3.3%.

Curiously, the sentiment improvement happened while the United States job openings dropped by 1.1 million in August, according to the U.S. Labor Department. The decline was the largest since April 2020 and signaled the U.S. Federal Reserve’s aggressive contractive monetary policy could end sooner than expected.

The overall bullish sentiment might have caused Bitcoin to break the $20,000 resistance, but that does not mean professional investors are comfortable at the current price levels.

Margin traders did not increase their longs despite the rally

Monitoring margin and options markets provide excellent insight into how professional traders are positioned. Margin trading allows investors to borrow cryptocurrency to leverage their trading position. For example, one can increase exposure by borrowing stablecoins to buy an additional Bitcoin position.

On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet on its price declining. However, unlike futures contracts, the balance between margin longs and shorts isn’t always matched.

*OKX USDT/BTC margin lending ratio. Source: OKX*

The above chart shows that OKX traders’ margin lending ratio has remained relatively stable, near 12. At the same time, Bitcoin price jumped 5% since Oct. 3. Furthermore, the metric remains bullish by favoring stablecoin borrowing by a wide margin. As a result, pro traders have been holding bullish positions.

Option markets hold a neutral stance

To understand whether Bitcoin will be able to sustain the $20,000 support, the 25% delta skew is a telling sign whenever arbitrage desks and market makers are overcharging for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put options premium is higher than risk call options.

The skew indicator will move above 12% if traders fear a Bitcoin price crash. On the other hand, generalized excitement reflects a negative 12% skew.

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

As displayed above, the 25% delta skew had been above 12% since Sept. 21. It did nosedive below that threshold on Oct. 3, suggesting options traders are pricing a similar risk of unexpected pumps or dumps.

Whenever this metric stands above 12%, it signals that traders are fearful and reflects a lack of interest in offering downside protection.

Despite the neutral Bitcoin options indicator, the OKX margin lending rate showed whales and market makers maintaining their bullish bets after the 5% BTC price increase on Oct. 4.

Derivatives seem to reflect trust in the $20,000 support gaining strength as investors display higher odds of the U.S. Federal Reserve easing interest rate hikes sooner than expected.

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

Upside capped at $980B total crypto market, according to derivatives metrics

A bearish formation in the total market capitalization chart has been gaining strength after two failures to break its resistance level.

It is becoming increasingly challenging to support a bullish short-term view for cryptocurrencies as the total crypto market capitalization has been below $1.4 trillion for the past 146 days. Furthermore, a descending channel initiated in late July has limited the upside after two strong rejections.

*Total crypto market cap, USD. Source: TradingView*

The 1% weekly negative performance in cryptocurrency markets was accompanied by stagnation in the S&P 500 stock market index, which remained basically flat at $3,650. Uncertainty continues to limit the eventual recovery as worsening global economic conditions have caused trans-Pacific shipping rates to plunge 75% versus the previous year, forcing ocean carriers to cancel dozens of voyages.

Conflicting macroeconomic signals limit risk market upside

From one side, the global macroeconomic scenario improved after the United Kingdom’s government reverted plans to cut income taxes on Oct. 3. On the other hand, investors’ fear increased as global investment bank Credit Suisse’s credit default swaps reached their highest level on Oct. 3. Such instruments allow investors to protect against default, and their cost surpassed levels seen at the height of the 2008 financial crisis.

Below is a list of the winners and losers of the crypto market capitalization’s 1% loss to $935 billion. Bitcoin (BTC) stood out with a 1% gain, which led its dominance rate to hit 41.5%, the highest since Aug. 5.

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

Quant (QNT) jumped 15% on speculation that its interoperable blockchain protocol would find adoption across governmental and regulatory bodies.

Maker (MKR) gained 10.6% after MakerDAO launched a proposal to decrease the stability fee for the Curve protocol staked Ether (ETH) pool.

UniSwap Protocol (UNI) gained 10.6% after UniSwap Labs, a startup contributing to the protocol, reportedly raised over $100 million from venture capitalists.

Still, a single week of negative performance is not enough to interpret how professional traders are positioned. Those interested in tracking whales and market markers should analyze derivatives markets.

Derivatives markets point to further downside

For instance, perpetual futures, also known as inverse swaps, have an embedded rate usually charged every eight hours. 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.

*Accumulated 7-day perpetual futures funding rate on Oct. 3. Source: Coinglass*

Perpetual contracts reflected neutral sentiment as the accumulated funding rate was relatively flat in most cases over the past seven days. The only exception was Ether Classic (ETC), although a 0.50% weekly cost to maintain a short (bear) position should not be deemed relevant.

Since Sept. 26, the yields on the U.S. Treasury’s 5-year notes declined from 4.2% to 3.83%, indicating investors are demanding fewer returns to hold extremely safe assets. The flight-to-quality movement shows how risk-averse traders are as mixed sentiment emerges from lackluster economic indicators and corporate earnings.

For this reason, bears believe that the prevailing longer-term descending formation will continue in the upcoming weeks. In addition, professional traders’ lack of interest in leveraging cryptocurrency longs (buys) is evident in the neutral futures funding rate. Consequently, the current $980 billion market capitalization resistance should remain strong.

Bitcoin holds $19K, but volatility expected as Friday’s $2.2B BTC options expiry approaches

Traders expect an uptick in volatility due to the possibility of September’s $2.2 billion options expiry putting pressure on BTC price near a critical support level.

This week, the $20,000 resistance is proving to be stronger than expected and even after Bitcoin (BTC) price rejected this level on Sept. 27, BTC bulls still have reasons not to give up.

According to the four-month-long descending triangle, as long as the $18,500 support holds, Bitcoin price has until late October to determine whether the downtrend will continue.

*Bitcoin/USD 1-day price index. Source: TradingView*

Bitcoin bulls might have been disappointed by the lackluster price performance as BTC has failed multiple times to break above $20,000, but macroeconomic events might trigger a rally sooner than expected.

Some analysts point to the United Kingdom’s unexpected intervention in the bond market as the breaking point of the government’s debt credibility. On Sept. 28, the Bank of England announced that it would begin the temporary purchase of long-dated bonds to calm investors after a sharp yield increase, the highest since 1957.

To justify the intervention, the Bank of England stated, “were dysfunction in this market to continue or worsen, there would be a material risk to U.K. financial stability.” Taking this measure is diametrically the opposite of the promise to sell $85 billion in bond holdings within 12 months. In short, the government’s credibility is being questioned and as a result, investors are demanding much higher returns to hold U.K. debt.

The impact of the government’s efforts to curb inflation are beginning to impair corporate revenues and according to Bloomberg, Apple recently backed off plans to increase production on Sept. 27. Amazon, the world’s biggest retailer, is also estimated to have shuttered plans to open 42 facilities, as per MWPVL International Inc.

That is why the $2.2 billion Bitcoin (BTC) monthly options expiry on Sept. 30 will put a lot of price pressure on the bulls, even though thebears seem slightly better positioned as Bitcoin attempts to hold on to $19,000.

Most of the bullish bets were placed above $21,000

Bitcoin’s rally toward the $22,500 resistance on Sept. 12 gave the bulls the signal to expect a continuation of the uptrend. This becomes evident because only 15% of the call (buy) options for Sept. 30 have been placed at $21,000 or lower. This means Bitcoin bears are better positioned for the expiry of the $2.2 billion in monthly options.

*Bitcoin options aggregate open interest for Sept. 30. Source: CoinGlass*

A broader view using the 1.49 call-to-put ratio shows a skewed situation with bullish bets (calls) open interest at $1.26 billion versus the $850 million put (sell) options. Nevertheless, as Bitcoin currently stands near $19,000 and bears have a dominant position.

If Bitcoin price remains below $20,000 at 8:00 am UTC on Sept. 30, only $37 million worth of these call (buy) options will be available. This difference happens because there is no use in the right to buy Bitcoin at $20,000 or $21,000 if it trades below that level on expiry.

Bears could pocket a $350 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Sept. 30 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $18,000 and $19,000: 500 calls vs. 19,800 puts. The net result favors bears by $350 million.
Between $19,000 and $20,000: 2,000 calls vs. 16,000 puts. The net result favors bearish bets by $270 million.
Between $20,000 and $21,000: 5,900 calls vs. 12,700 puts. The net result favors bears by $135 million.
Between $21,000 and $22,000: 10,100 calls vs. 11,300 puts. The net result is balanced between bulls and bears.

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.

Regulatory pressure could complicate matters for Bitcoin bulls

Bitcoin bulls need to push the price above $21,000 on Sept. 30 to balance the scales and avoid a potential $350 million loss. However, Bitcoin bulls seem out of luck since the U.S. Federal Reserve chairman called for “crypto activities” regulation on Sept. 27, alerting “very significant structural issues around the lack of transparency.”

If bears dominate the September monthly options expiry, that will likely add firepower for further bets on the downside for Bitcoin price. But, at the moment, there is no indication that bulls can turn the tables and avoid the pressure from the four-month-long descending triangle.

Total crypto market cap shows strength even after the Merge and Federal Reserve rate hike

Many of the top-80 cryptocurrencies dropped by 15%+ in the past week, but the Tether premium in Asia-based futures markets shows traders remain calm.

Cryptocurrencies have been in a bear trend since mid-August after they failed to break above the $1.2 trillion market capitalization resistance. Even with the current bear trend and a brutal 25% correction, it has not been enough to break the three-month-long ascending trend.

The crypto markets’ aggregate capitalization declined 7.2% to $920 billion in the seven days leading to Sept. 21. Investors wanted to play it safe ahead of the Federal Open Markets Committee meeting, which decided to increase the interest rate by 0.75%.

*Total crypto market cap, USD billions. Source: TradingView*

By increasing the cost of borrowing cash, the monetary authority aims to curb inflationary pressure while increasing the burden on consumer finance and corporate debt. This explains why investors moved away from risk assets, including stock markets, foreign currencies, commodities and cryptocurrencies. For instance, WTI oil prices ceded 6.8% from Sept. 14, and the MSCI China stock market index dropped 5.1%.

Ether (ETH) also saw a 17.3% retrace during the seven-day period and many altcoins performed even worse. The Ethereum network Merge and its subsequent impact on other GPU-mineable coins caused some skewed results among the worst weekly performers.

Chiliz (CHZ) rallied 21.5% following two successful fan token launches from MIBR esports team and the VASCO soccer team from Brazil.

XRP gained 16.6% after Ripple Labs called for a federal judge to immediately rule whether the company’s XRP token sales violated U.S. securities laws.

ApeCoin (APE) gained 15% as the community expects the staking program to launch, which shall be detailed by Horizen Labs on Sept. 22.

RavenCoin (RVN) and Ethereum Classic (ETC) retraced most of their gains from the previous week as investors realized the hash rate gains from Ethereum miners did not necessarily convert into higher adoption.

Traders’ appetite did not vanish despite the correction

The OKX Tether (USDT) premium is a good gauge of China-based crypto retail trader demand. It measures the difference between China-based peer-to-peer trades and the United States dollar.

Excessive buying demand tends to pressure the indicator above fair value at 100%, and during bearish markets, Tether’s market offer is flooded, causing a 4% or higher discount.

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

The Tether premium currently stands at 100.7%, its highest level since June 15. While still under the neutral area, the indicator showed a modest improvement over the past week. Considering that crypto markets tanked by 7.2%, this data should be viewed as a victory.

Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

*Accumulated perpetual futures funding rate on Sept. 21. Source: Coinglass*

As depicted above, the accumulated seve-day funding rate was negative for every altcoin. This data indicates excess demand for shorts (sellers), although it could be dismissed in Ether’s case because investors aiming for the free fork coins during the Merge likely bought ETH and sold futures contracts to hedge the position.

More importantly, Bitcoin’s funding rate held slightly positive during a week of price decline and potentially bearish news from the FED. Now that this critical decision has been made, investors tend to avoid placing new bets until some new data provides insights on how the economy adjusts.

Overall, the Tether premium and futures’ funding rate show no signs of stress, which is positive considering how badly crypto markets have performed.

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.

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

Bitcoin price dropped to $18,270, but derivatives traders didn’t flinch. Here is why.

Bitcoin (BTC) faced a 9% correction in the early hours of Sept. 19 as the price traded down to $18,270. Even though the price quickly bounced back above $19,000, this level was the lowest price seen in three months. However, pro traders held their ground and were not inclined to take the loss, as measured by derivatives contracts.

*Bitcoin/USD price index, 2-hour. Source: TradingView*

Pinpointing the rationale behind the crash is extremely difficult, but some say United States President Joe Biden’s interview on CBS “60 Minutes” raised concerns about global warfare. When responding to whether U.S. forces would defend Taiwan in the event of a China-led invasion, Biden replied: “Yes, if in fact, there was an unprecedented attack.”

Others cite China’s central bank lowering the borrowing cost of 14-day reverse repurchase agreements to 2.15% from 2.25%. The monetary authority is showing signs of weakness in the current market conditions by injecting more money to stimulate the economy amid inflationary pressure.

There is also pressure from the upcoming U.S. Federal Reserve Committee meeting on Sept. 21, which is expected to hike interest rates by 0.75% as central bankers scramble to ease the inflationary pressure. As a result, yields on the 5-year Treasury notes soared to 3.70%, the highest level since November 2007.

Let’s look at crypto derivatives data to understand whether professional investors changed their position while Bitcoin crashed below $19,000.

There was no impact on BTC derivatives metrics during the 9% crash

Retail traders usually avoid quarterly futures due to their price difference from spot markets, but they are professional traders’ preferred instruments because they prevent the fluctuation of funding rates that often occurs in a perpetual futures contract.

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

The indicator should trade at a 4% to 8% annualized premium in healthy markets to cover costs and associated risks. Thus, one can safely say that derivatives traders had been neutral to bearish for the past two weeks as the Bitcoin futures premium held below 2% the entire time.

More importantly, the shakeout on Sept. 19 did not cause any meaningful impact on the indicator, which stands at 0.5%. This data reflects professional traders’ unwillingness to add leveraged short (bear) positions at current price levels.

One must also analyze the Bitcoin options to exclude externalities specific to the futures instrument. For example, the 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

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

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 12%. On the other hand, bullish trends tend to drive the skew indicator below negative 12%, meaning the bearish put options are discounted.

The 30-day delta skew had been near the 12% threshold since Sept. 15, and signaled that options traders were less inclined to offer downside protection. The negative price move on Sept. 19 was not enough to flip those whales bearish, and the indicator currently stands at 11%.

The bottom could be in, but it depends on macroeconomic and global hurdles

Derivatives metrics suggest that the Bitcoin price dump on Sept. 19 was partially expected, which explains why the $19,000 support was regained in less than two hours. Still, none of this will matter if the U.S. Federal Reserve raises the interest rates above the consensus or if stock markets collapse further due to the energy crisis and political tensions.

Therefore, traders should continuously scan macroeconomic data and monitor the central banks’ attitude before trying to pin a flag on the ultimate bottom of the current bear market. Presently, the odds of Bitcoin testing sub-$18,000 prices remain high, especially considering the weak demand for leverage longs on BTC futures.

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

Bitcoin price dropped to $18,270, but derivatives traders didn’t flinch. Here is why.

Let’s look at crypto derivatives data to understand whether professional investors changed their position while Bitcoin crashed below $19,000.

There was no impact on BTC derivatives metrics during the 9% crash

The bottom could be in, but it depends on macroeconomic and global hurdles

Volatility expected as $490M in ETH options expire shortly after the Ethereum Merge

The outcome of the Ethereum Merge will be a primary price drive that dictates whether ETH bears profit from this week’s $490 million options expiry.

Given the current state of the wider crypto market, some traders might be surprised to learn that Ether (ETH) has been trading in an ascending trend for the past 17 days. While the entire cryptocurrency market experienced a 10% decline on Sept. 13, Ether’s price held firm near the $1,570 support level.

*Ether/USD price index. Source: TradingView*

In less than 12 hours, the Ethereum network is scheduled to undergo its largest ever upgrade and the possibility of extreme volatility should not be ignored. The transition to a proof-of-stake network will be a game changer for multiple reasons, including a 98.5% cut in energy use and reduced coin inflation.

During an upgrade, there is always the risk of multiple malfunctions, especially in more complex systems like the Ethereum Virtual Machine processing. Even if the upgrade has been relatively smooth on previous testnet versions, it is impossible to predict the outcome of the decentralized applications and second-layer solutions plugged into Ethereum’s ecosystem.

That is precisely why the $490 million Ether options expiry on Aug. 16 will put a lot of price pressure on both sides, even though bulls seem slightly better positioned as Ether nears $1,600.

Most bearish bets are placed below $1,600

Ether’s failure to break the $2,000 resistance on Aug. 14 and its subsequent plunge to $1,420 on Aug. 29 gave the bears the signal to expect continuation of the downtrend. That becomes evident as only 12% of the put (sell) options for Sept. 16 have been placed above $1,600. Thus, Ether bulls are better positioned for the expiry of $490 million weekly options.

*Ether options aggregate open interest for Sept. 16. Source: CoinGlass*

A broader view using the 1.06 call-to-put ratio shows a relatively balanced situation with bullish bets (calls) open interest at $252 million versus the $238 million put (sell) options. Nevertheless, as Ether currently stands near $1,600, both sides have similar odds of moving the needle.

If Ether price remains below $1,600 at 8:00 am UTC on Sept. 16, only $27 million worth of these call (buy) options will be available. This difference happens because there is no use in the right to buy Ether at $1,600 or $1,700 if it trades below that level on expiry.

Bears could pocket a $100 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Sept. 16 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $1,400 and $1,500: 33,000 calls vs. 2,600 puts. The net result favors bears by $100 million.
Between $1,500 and $1,700: 29,600 calls vs. 29,000 puts. The net result is balanced between bulls and bears.
Between $1,700 and $1,800: 49,200 calls vs. 3,800 puts. The net result favors bulls by $80 million.
Between $1,800 and $1,900: 81,400 calls vs. 700 puts. Bulls increase their gains to $145 million.

Macroeconomic turmoil might have helped ETH bears

Ether bulls need to sustain the price above $1,500 on Sept. 16 to balance the scales and avoid a potential $100 million loss. However, Ether bulls were unlucky on Sept. 12 after the United States stock markets fell by $1.6 trillion on Sept. 13 due to a hotter-than-expected inflation report.

There’s absolutely no way to predict the outcome of Ethereum Merge, let alone its price impact. However, analysis suggests these three indicators should be watched by traders during the Merge event.

One can never guess the consequences of unexpected delays or even the positive impact of a smooth transition because investors could have priced in the Merge in advance, triggering a “sell the news” event. Consequently, both bulls and bears still have a shot on the Sept. 16 weekly options expiry.

Bitcoin and altcoins pop to the upside, but upcoming macro events could cap the rally

The FOMC’s decision on Sept. 21 could cause traders to reduce their risk exposure, limiting the recent gains seen across the crypto market.

The 13% gains in the six days leading to Sept. 12 brought the total crypto market capitalization closer to $1.1 trillion, but this was not enough to break the descending trend. As a result, the overall trend for the past 55 days has been bearish, with the latest support test on Sept. 7 at a $950 billion total market cap.

An improvement in traditional markets has accompanied the recent 13% crypto market rally. The tech-heavy Nasdaq Composite Index gained 6.2% since Sept. 6 and WTI oil prices rallied 7.8% since Sept. 7. This data reinforces the high correlation versus traditional assets and places the spotlight on the importance of closely monitoring macroeconomic conditions.

The correlation metric ranges from a negative 1, meaning select markets move in opposite directions, to a positive 1, which reflects a perfectly symmetrical movement. A disparity or a lack of relationship between the two assets would be represented by 0.

*Nasdaq futures and Bitcoin/USD 50-day correlation. Source: TradingView*

As displayed above, the Nasdaq composite index and Bitcoin 50-day correlation currently stand at 0.74, which has been the norm throughout 2022.

The FED’s Sept. 21 decision will set the mood

Stock market investors are anxiously awaiting the Sept. 21 U.S. Federal Reserve meeting, where the central bank is expected to raise interest rates again. While the market consensus is a third consecutive 0.75 percentage point rate hike, investors are looking for signs that the economic tightening is fading away.

A report on the U.S. Consumer Price Index, a relevant inflation metric, is expected on Sept. 13 and on Sept. 15, investor attention will be glued to the U.S. retail sales and industrial production data.

Currently, the regulatory sentiment remains largely unfavorable, especially after the enforcement director for the United States Securities and Exchange Commission (SEC), Gurbir Grewal, said the financial regulator would continue to investigate and bring enforcement actions against crypto firms.

Altcoins rallied, but pro traders were resilient to leverage longs

Below are the winners and losers of last week’s total crypto market capitalization 8.3% gain to $1.08 trillion. Bitcoin (BTC) stood out with a 12.5% gain, which led its dominance rate to hit 41.3%, the highest since Aug. 9.

Terra (LUNA) jumped 107.7% after Terra approved a proposal on Sept. 9 for an additional airdrop of over 19 million LUNA tokens until Oct. 4.

RavenCoin (RVN) gained 65.8% after the network hash rate reached 5.7 TH per second, the highest level since January 2022.

Cosmos (ATOM) gained 24.6% after Crypto research firm Delphi Digital shifted the focus of its research and development arm to the Cosmos ecosystem on Sept. 8.

Even with these gains, a single week of positive performance is not enough to interpret how professional traders are positioned. Those interested in tracking whales and market markers should analyze derivatives markets. Perpetual contracts, also known as inverse swaps, have an embedded rate usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

*Accumulated 7-day perpetual futures funding rate on Sept. 12. Source: Coinglass*

Perpetual contracts reflected a neutral sentiment as the accumulated funding rate was relatively flat in most cases. The only exceptions have been Ether (ETH) and Ether Classic (ETC), even though a 0.30% weekly cost to maintain a short (bear) position should not be deemed relevant. Moreover, those cases are likely related to the Ethereum Merge, the transition to a proof-of-stake network expected for Sept. 15.

The odds of a downtrend are still high

The positive 8.3% weekly performance can’t be deemed a trend change considering the move was likely tied to the recovery in traditional markets. Furthermore, one could assume that investors are likely to price in the risk of additional regulatory impact after Gary Gensler’s remarks.

There is still uncertainty on potential macroeconomic triggers and traders are not likely to add risk ahead of important events like the FOMC interest rate decision. For this reason, bears have reason to believe that the prevailing longer-term descending formation will resume in the upcoming weeks.

Professional traders’ lack of interest in leverage longs is evident in the neutral futures funding rate and this is another sign of negative sentiment from investors. If the crypto total market capitalization tests the bearish pattern support level at $940 million, traders should expect a 12.5% price drop from the current $1.08 billion level.

CME Group premiers ETH futures options trading as the world braces for The Merge

The new offering fits in with the variety of crypto-based products the major derivatives marketplace has developed since launching its pioneering BTC futures contracts in 2017.

Derivatives marketplace Chicago Mercantile Exchange Group (CME Group) announced the launch of options trading for its Ether (ETH) futures products Monday — the same week as the expected Ethereum Merge.

The launch of the new futures contract is “well timed,” CME Group global head of equity and FX products Tim McCourt said in a statement. He not:

“As market participants anticipate the upcoming Ethereum Merge, a potentially game-changing update of one of the largest cryptocurrency networks, interest in Ether derivatives is surging.”

CME Group, the world’s leading derivatives marketplace, announced its intention to launch futures options Aug. 18. The contracts will deliver one Ether future at 50 ETH per contract, based on a reference rate of the U.S. dollar price of Ethe updated daily.

The new contracts join a lineup of existing CME Group products. The group launched the first Bitcoin futures contract in December 2017. Its Bitcoin (BTC) and ETH derivatives contracts saw record-high interest in the second quarter of this year, despite the crypto winter.

Just-In: CME Clears Regulatory Hurdle, Launches Ether (ETH) Options Ahead Merge
The world’s leading derivatives marketplace CME Group on Monday said it has launched Ether (ETH) options on futures. pic.twitter.com/Ul4GTZ39ao

— IEARN BOT (@IearnBot) September 12, 2022

CME Group introduced a BTC options trading product in January 2020. CME launched micro Ether futures contracts in December 2021 and in March 2022 launched options contracts for its existing micro BTC and ETH futures at 10% of the size of the tokens. It also offers euro-denominated BTC and ETH futures.

Ethereum developers have confirmed that the Ethereum blockchain is ready for “The Merge,” during which it will transition from a proof-of-work to a proof-of-stake consensus mechanism. The Merge is expected to be completed on Sept. 15.

At the time of writing, ETH is trading at $1,715, down 3.23% in 24 hours and down 11.14% in the last month. Anticipation of The Merge and the release of August U.S. Consumer Price Index (CPI) data Sept. 15 could lead to greater price instability.

3 Bitcoin price metrics suggest Sept. 9’s 10% pump marked the final cycle bottom

Is the BTC bottom finally in? Data suggests that bears might be losing their tight grip on the market.

The correlation between Bitcoin (BTC) and stock markets has been unusually high since mid-March, meaning the two asset classes have presented near-identical directional movement. This data might explain why the 10% rally above $21,000 is being dismissed by most traders, especially considering S&P 500 futures gained 4% in two days. However, Bitcoin trading activity and the derivatives market strongly support the recent gains.

Curiously, the current Bitcoin rally happened a day after the White House Office of Science and Technology Policy released a report investigating the energy usage associated with digital assets. The study recommended enforcing energy reliability and efficiency standards. It also suggested federal agencies provide technical assistance and initiate a collaborative process with the industry.

*Bitcoin/USD (orange, left) vs. S&P 500 futures (blue). Source: TradingView*

Notice how the peaks and valleys on both charts tend to coincide, but the correlation changes as investors’ perceptions and risk assessments vary over time. For example, between May 2021 and July 2021, the correlation was inverted most of the period. Overall, the stock market posted steady gains while the crypto markets collapsed.

More importantly, the chart above shows a huge gap being opened between Bitcoin and the stock market as stocks rallied from mid-July to mid-August. A comparison using the same scale would be better, but that does not work due to the difference in volatility. Still, it is reasonable to conclude that historically these gaps tend to close.

The S&P 500 futures declined 18% in 2022 until Sept. 6, while Bitcoin dropped 60.5% during the same period. So it makes sense to assume that if investors’ appetite for risk assets returns, assets with higher volatility will outperform during a rally.

There are other factors that are in play though, so there is no way to predict the outcome. But the return of investors’ appetite for risk would justify Bitcoin’s outperforming the stock market and significantly reducin the performance difference.

Pro traders were not expecting Bitcoin to bounce

Bearish traders were liquidated on $120 million in futures contracts, the highest figure since June 13. Typically, one would not expect this outcome considering Bitcoin had lost 13% in the two weeks leading to Sept. 7, but one could assume that short sellers (bears) were caught by surprise as the exchanges’ liquidation engine scrambled to buy those orders.

However, there’s other anecdotal evidence hidden in the liquidation data provided by the derivatives exchanges.

*Bitcoin futures 24-hour liquidation data. Source: CoinGlass*

Notice how retail-driven exchanges (Binance and Bybit) represented a mere 17.4% of the total orders that were forcefully closed, while their combined market share on Bitcoin futures is 30.6%. The data leaves no doubt that the whales at OKX and FTX were the ones being squeezed.

Another interesting piece of data that sets Sept. 9’s 10% pump apart is Bitcoin dominance, which measures its market share versus all other cryptocurrencies.

*Bitcoin dominance. Source: TradingView*

Notice how the indicator spiked from 39% to the present 40.5%, something unseen since May 11 when Bitcoin flash crashed below $26,000. It took another 31 days for the bear market to break the $28,500 support on June 12. Also note that a sharp increase in BTC dominance can happen during rallies and steep price corrections so relying solely on these indicators provides little aid in interpreting market movements.

Fear has been erased from options markets

The 25% delta skew, which is the leading Bitcoin options “fear and greed” metric, improved just enough to enter a neutral level.

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

If option investors feared a price crash, the skew indicator would move above 12%, whereas investor excitement tends to reflect a negative 12% skew. After peaking at 18% on Sept. 7, the metric currently stands at 12%, which is the very edge of the neutral market. Therefore, the Bitcoin pump on Sept. 9 signaled that professional investors are no longer demanding excessive premiums for protective put options.

These three indicators back the relevance of Bitcoin’s recent 10% pump. A $120 million liquidation on leverage shorts (bears) was concentrated on less “retail-oriented” derivatives exchanges, the 1.5% hike in Bitcoin’s dominance rate and options traders pricing similar upside and downside risks all suggest that Bitcoin may have finally found a bottom.