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Is BTC price about to retest $20K? 5 things to know in Bitcoin this week

Bitcoin looks like it is treading on thin ice as February fails to match the gains of last month.

Bitcoin (BTC) starts the second week of February in a newly bearish mood as multimonth highs fail to hold.

In what may yet bring vindication to those predicting a major BTC price come down, BTC/USD is back under $23,000 and making lower lows on hourly timeframes.

Feb. 6 trading may not yet be underway in Europe or the United States, but Asian markets are already falling and the U.S. dollar is gaining — potential further hurdles for Bitcoin bulls to overcome.

With some macroeconomic data to come from the Federal Reserve this week, attention is mainly focused on next week’s inflation check in the form of January’s Consumer Price Index (CPI).

In the build-up to this event, the results of which are already hotly contested, volatility may gain a fresh foothold across risk assets.

Add to that those concerns mentioned above that Bitcoin is long overdue for a more significant retracement than those seen in recent weeks, and the recipe is there for difficult but potentially lucrative trading conditions.

Cointelegraph looks at the state of play on Bitcoin this week and considers the factors at play in moving the markets.

BTC price disappoints with weekly close

It is very much a tale of two Bitcoins when it comes to analyzing BTC price action this week.

BTC/USD has managed to retain the majority of its spectacular January gains, totaling almost 40%. At the same time, signs of a comedown are on the cards.

While comparatively strong at just under $23,000, the weekly close still failed to beat the previous one and represented a rejection at a key resistance level from mid-2022.

“BTC is failing its retest of ~$23400 for the time being,” popular trader and analyst Rekt Capital summarized about the topic on Feb. 5.

An accompanying weekly chart highlighted the support and resistance zones in play.

“Important BTC can Weekly Close above this level for a chance at upside. August 2022 shows that a failed retest could see BTC drop deeper in the blue-blue range,” he continued.

“Technically, retest still in progress.”

*BTC/USD annotated chart. Source: Rekt Capital/ Twitter*

As Cointelegraph reported over the weekend, traders are already betting on where a potential pullback may end up — and which levels could act as definitive support to further buoy Bitcoin’s newfound bullish momentum.

These currently center around $20,000, a psychologically significant number and the site of Bitcoin’s old all-time high from 2017.

BTC/USD traded at around $22,700 at the time of writing, data from Cointelegraph Markets Pro and TradingView showed, continuing to push lower during Asia trading hours.

“Some bids were filled on this recent push down (green box) but most of the remaining bids below have been pulled (red box),” trader Credible Crypto wrote about order book activity on Feb. 5.

“If we continue lower here eyes still on 19-21k region as a logical bounce zone.”

For a quietly confident Il Capo of Crypto, meanwhile, it is already crunch time when it comes to the trend reversal. A supporter of new macro lows throughout the January gains, the trader and social media pundit argued that breaking below $22,500 would be “bearish confirmation.”

“Current bear market rally has created the perfect environment for people to keep buying all the dips when the current trend reverses,” he wrote during a Twitter debate.

“Perfect scenario for a capitulation event in the next few weeks.”

*BTC/USD 1-day candle chart (Bitstamp). Source: TradingView*

Fed officials to speak as market eyes CPI

The week in macro looks decidedly calm compared to the start of February, with less data and more commentary set to define the mood.

That commentary will come courtesy of Fed officials, including Chair Jerome Powell, with any hint of policy change in their language potentially to shifting markets.

The week prior saw just such a phenomenon play out, as Powell used the word “disinflation” no fewer than fifteen times during a speech and questions and answer session accompanying the Fed’s move to enact a 0.25% interest rate hike.

Ahead of new key data next week, talk in analytics circles is on how and when the Fed might transition from a restrictive to an accommodative economic policy.

As Cointelegraph reported, not everyone believes that the U.S. will pull off the “soft landing” when it comes to lowering inflation and will instead experience a recession.

“Don’t be surprised if the term “soft-landing” remains around for a while before the rug being pulled in Q3 or Q4 this year,” investor Andy West, co-founder of Longlead Capital Partners and HedgQuarters, concluded in a dedicated Twitter thread at the weekend.

In the meantime, further analysis argues that it may be a case of business as usual, with smaller rate hikes after Powell’s “mini victory lap” over declining inflation.

“Personally, my belief is that the Fed will most likely raise by +0.25% in the upcoming two meetings (March and May),” Caleb Franzen, senior market analyst at CubicAnalytics, wrote in a blog post on Feb. 4.

“Of course, all future actions by the Fed will be dependent on the continued evolution of inflation data & broader macroeconomic conditions.”

Franzen acknowledged that while recession was not currently an apt description of the U.S. economy, conditions could still worsen going forward, referencing three such cases in past years.

Closer to home, next week’s CPI release is already on the radar for many. The extent to which January’s data supports the waning inflation narrative should be key.

“Post-FOMC, we have a heap of 2nd tier data releases including the important ISM services and NFP,” trading firm QCP Capital wrote in forward guidance mailed to Telegram channel subscribers last week.

“However the decider will be the Valentine’s Day CPI – and we think there are upside risks to that release.”

*U.S. Consumer Price Index (CPI) chart. Source: Bureau of Labor Statistics*

Miner “relief” contrasts with BTC sales

Turning to Bitcoin, network fundamentals currently offer some stability amid a turbulent environment.

According to current estimates from BTC.com, difficulty is stable at all-time highs, with only a modest negative readjustment forecast in six days’ time.

This could well end up positive depending on Bitcoin price action and a look at hash rate data suggests that miners remain in fierce competition.

*Bitcoin miner net position change chart. Source: Glassnode*

A countertrend comes in the form of miners’ economic behavior. The latest data from on-chain analytics firm Glassnode shows that sales of BTC by miners continue to increase, with their reserves dropping faster over 30-day periods.

Reserves correspondingly totaled their lowest in a month on Feb. 6, with miners’ balance at 1,822,605.594 BTC.

*BTC miner balance chart. Source: Glassnode*

Overall, however, current price action has provided “relief” for miners, Philip Swift, the co-founder of trading suite Decentrader, said.

In a tweet last week, Swift referenced the Puell Multiple, a measure of the relative value of BTC mined, which has left its “capitulation zone” to reflect better profitability.

“After 191 days in capitulation zone, the Puell Multiple has rallied. Showing relief for miners via increased revenue and likely reduced sell pressure,” he commented.

*Bitcoin Puell Multiple annotated chart. Source: Philip Swift/ Twitter*

NVT suggests volatility will kick in

Some on-chain data is still surging ahead despite the slowdown in BTC price gains.

Of interest this week is Bitcoin’s network value to transaction (NVT) signal, which is now at levels not seen in nearly two years.

NVT signal measures the value of BTC transferred on-chain against the Bitcoin market cap. It is an adaption of the NVT ratio indicator but uses a 90-day moving average of transaction volume instead of raw data.

NVT at multiyear highs may be cause for concern — network valuation is relatively high compared to value transferred, a scenario which may prove “unsustainable,” in the words of its creator, Willy Woo.

*Bitcoin NVT signal chart. Source: Glassnode/ Twitter*

As Cointelegraph reported late last year, however, there are multiple nuances to NVT which make its various incarnations diverge from one another to provide a complex picture of on-chain value at a given price.

“Bitcoin’s NVT is showing indications of value normalization and the start of a new market regime,” Charles Edwards, the CEO of crypto investment firm Capriole, commented about a further tweak of NVT, dubbed dynamic range NVT, on Feb. 6.

“The message is the same further through history and more often than not it is good news in the mid- to long-term. In the short-term, this is a place we typically see volatility.”

*Bitcoin dynamic range NVT ratio chart. Source: Charles Edwards/ Twitter*

Small Bitcoin wallet show “trader optimism”

In a glimmer of hope, on-chain research firm Santiment notes that the number of smaller Bitcoin wallets has ballooned this year.

Since BTC/USD crossed the $20,000 mark once more on Jan. 13, 620,000 wallets with a maximum of 0.1 BTC have reappeared.

That event, Santiment says, marks the moment when “FOMO returned” to the market, with the subsequent growth in wallet numbers meaning that these are at their highest since Nov. 19, 2022.

“There have been ~620k small Bitcoin addresses that have popped back up on the network since FOMO returned on January 13th when price regained $20k,” Twitter commentary confirmed on Feb. 6.

“These 0.1 BTC or less addresses grew slowly in 2022, but 2023 is showing a return of trader optimism.”

*Bitcoin wallet addresses vs. BTC/USD annotated chart. Source: Santiment/ Twitter*

A look at the Crypto Fear & Greed Index, meanwhile, shows “greed” still being the primary description of market sentiment.

On Jan. 30, the Index hit its “greediest” since Bitcoin’s November 2021 all-time highs.

*Crypto Fear & Greed Index (screenshot). Source: Alternative.me*

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 pro traders warm up the $24K level, suggesting that the current BTC rally has legs

The Fed’s interest hike matched the market consensus and weak employment data boosted investors’ appetite for risk assets, but BTC traders should still exercise caution.

On Feb. 1 and Feb 2. Bitcoin’s (BTC) price surpassed even the most bullish price projections after the U.S. Federal Reserve announced plans to raise interest rates by 25 basis points.

Even though Fed chair Jerome Powell told investors not to wait for interest rate cuts in 2023, during his press conference he did clearly state that the employment data is currently the main focus.

The results of the ADP payroll survey revealed on Feb. 1 that U.S. private-sector hiring was significantly slower in January. ADP’s measure of private sector payrolls was 106,000, well below the 160,000 market consensus. This data fueled investors’ expectations of future interest rate hikes by the Fed going forward.

After testing the $22,500 support on Feb. 1, Bitcoin gained 6.5% in five hours and has since been flirting with the $24,000 level. While the recent gains are exciting, traders should note that the improvement in crypto market sentiment tracked the risk-on attitude seen in traditional markets.

Stocks with negative operating margin presented significant gains on Feb. 2, including Coinbase (COIN) 20%, Cloudflare (NET) 15%, Unity Software (U) 12% and DoorDash (DASH) 10%. That factor alone should be a warning sign that the gains of the last few weeks might not be sustainable. It’s also important to remember that Bitcoin’s 40-day correlation to the S&P 500 remains above 75%.

Potential regulatory headwinds could also have played a vital role in supporting Bitcoin’s upside. Huang Yiping, a former member of the Monetary Policy Committee at the People’s Bank of China, recently argued that a permanent ban on crypto could result in many missed opportunities.

Huang, now an economics professor at Peking University’s National School of Development, criticized Bitcoin for lacking intrinsic value, but noted that crypto-related technologies are “very valuable” to regulated financial systems.

Let’s look at derivatives metrics to understand whether professional traders added leverage positions after Bitcoin’s recent price breakout.

Bitcoin margin traders warm up to the $22,500 support

Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions.

For example, one can increase exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet on its price declining. Unlike futures contracts, the balance between margin longs and shorts isn’t always matched.

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

The above chart shows that OKX traders’ margin lending ratio drastically increased on Jan. 30, signaling that professional traders added leverage long after Bitcoin successfully bounced after testing the $22,500 support.

More importantly, Jan. 29 marked the indicator’s lowest level in more than eleven weeks at 13 favoring stablecoin borrowing by a wide margin — indicating that shorts are not confident about building bearish leveraged positions. At 24 at the time of writing, it is clearly evident that bulls are becoming more comfortable with the current $22,500 support.

Options traders flirt with an optimistic bias

Traders should also analyze options markets to understand whether the recent rally has caused investors to become more risk-averse. 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.

In short, the skew metric will move above 10% if traders fear a Bitcoin price crash. On the other hand, generalized excitement reflects a negative 10% skew.

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

The 25% delta skew has been relatively calm near negative 5, indicating similar odds for downside and upside from options traders. On the bright side, not even the $22,500 retest on Jan. 31 was enough to break the bulls’ spirit. Combined with the lack of demand from margin traders willing to short Bitcoin, the derivatives markets paint a bullish picture.

Even if it takes a little longer (perhaps a couple of days) to break above $24,000, there are no signs of stress coming from the Bitcoin margin and options markets. However, traditional markets continue to play a vital role in setting the trend, so Bitcoin investors should not become overconfident.

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 aims for $25K as institutional demand increases and economic data soothes investor fears

Strong corporate earnings and investors’ anticipation of a Federal Reserve pivot are helping to cement the case for risk assets like Bitcoin.

Bitcoin (BTC) price broke above $22,500 on Jan. 20 and has since been able to defend that level, accumulating 40.5% gains in the month of January. The move accompanied improvements in the stock market, which also rallied after China dropped COVID-19 restrictions after three years of strict pandemic controls.

E-commerce and entertainment companies lead as the year-to-date market performers. Warner Bros (WBD) added 54%, Shopify (SHOP) rose 42%, MercadoLibre (MELI) climbed 41%, Carnival Corp (CCL) 35% and Paramount Global (PARA) managed a 35% gain so far. Corporate earnings continue to attract investors’ inflow and attention after oil producer Chevron posted the second-largest annual profit ever recorded, at $36.5 billion.

More importantly, analysts expect Apple (AAPL) to post a mind-boggling $96 billion in earnings for 2022 on Feb. 2, vastly surpassing the $67.4 billion profit that Microsoft (MSFT) reported. Strong earnings also help to validate the current stock valuations, but they do not necessarily guarantee a brighter future for the economy.

A more favorable scenario for risk assets came largely from a decline in leading economic indicators, including homebuilder surveys, trucking surveys and contracting Purchasing Managers Index (PMI) data, according to Evercore ISI’s senior managing director, Julian Emanuel.

According to the research from financial services firm Matrixport, American institutional investors represent some 85% of recent purchasing activity. This means large players are “not giving up on crypto.” The study considers the returns occurring during U.S. trading hours but expects the outperformance of altcoins relative to Bitcoin.

From one side, Bitcoin bulls have reasons to celebrate after its price recovered 49% from the $15,500 low on Nov. 21, but bears still have the upper hand on a larger time frame since BTC is down 39% in 12 months.

Let’s look at Bitcoin derivatives metrics to better understand how professional traders are positioned in the current market conditions.

Asia-based stablecoin demand approaches the FOMO region

The USD Coin (USDC) 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, the stablecoin’s market offer is flooded, causing a 4% or higher discount.

*USDC peer-to-peer vs. USD/CNY. Source: OKX*

Currently, the USDC premium stands at 3.7%, down from a 1% discount two weeks prior, indicating much stronger demand for stablecoin buying in Asia. The indicator shifted gears after the 9% rally on Jan. 21, causing excessive demand from retail traders.

However, one should dive into BTC futures markets to understand how professional traders are positioned.

The futures premium has held a neutral stance since Jan. 21

Retail traders usually avoid quarterly futures due to their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract.

The three-month futures annualized premium should trade between +4% to +8% in healthy markets to cover costs and associated risks. Thus, when the futures trade below such a range, it shows a lack of confidence from leverage buyers — typically, a bearish indicator.

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

The chart shows positive momentum for the Bitcoin futures premium after the basis indicator broke above the 4% threshold on Jan. 21 — the highest in five months. This movement represents a drastic change from the bearish sentiment presented by the futures’ discount (backwardation) present until late 2022.

Traders are watching to see if the Fed broadcasts plans to pivot

While Bitcoin’s 40.5% gain in 2023 looks promising, the fact that the tech-heavy Nasdaq index rallied 10% in the same period raises suspicions. For instance, the street consensus is a pivot from the Federal Reserve’s interest rate hiking campaign at some point in 2023.

Bitcoin derivatives and stablecoin demand exited the panic levels but if the Fed’s expected soft landing takes place, the risk of a recessionary environment will limit stock market performance and hurt Bitcoin’s “inflation protection” appeal.

Currently, the odds favor bulls as leading economic indicators show a moderate correction — enough to ease inflation but not especially concerning, as solid corporate earnings confirm.

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.

Data shows pro Bitcoin traders want to feel bullish, but the rally to $23K wasn’t enough

Bitcoin price has flashed a few bullish signals, but traders are not too keen on adding leverage longs until after the Federal Reserve shows its cards on Feb. 1.

Bitcoin (BTC) price had a mixed reaction on Jan. 25 after the United States reported a 2.9% gross domestic product growth in the fourth quarter, slightly better than expected. Still, the sum of all goods and services commercialized between October and December grew less than 3.2% from the previous quarter.

Another data set limiting investors’ confidence was the likelihood that the U.S. Federal Reserve would not revert its contractive measures anytime soon after U.S. durable goods orders jumped 5.6% in December. The indicator came in much higher than anticipated, so it could potentially mean that interest rates will be increased for a little longer than expected.

Oil prices are also still a focus for investors, with West Texas Intermediate (WTI) approaching its highest level since mid-September, currently trading at $81.50. The underlying reason is the escalation of the Russia-Ukraine conflict after the U.S. and Germany decided on Dec. 25 to send battle tanks to Ukraine.

The United States Dollar Index (DXY), a measure of the dollar’s strength against a basket of top foreign currencies, sustained 102, near its lowest levels in eight months. This signals low confidence in the U.S. Federal Reserve’s ability to curb inflation without causing a significant recession.

Regulatory uncertainty could also have been vital in limiting Bitcoin’s upside. On Jan. 26, De Nederlandsche Bank, the Dutch central Bank, fined cryptocurrency exchange Coinbase $3.6 million due to non-compliance with local regulations for financial service providers.

Let’s look at derivatives metrics to understand better how professional traders are positioned in the current market conditions.

Bitcoin margin longs slightly increase

Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions.

The above chart shows that OKX traders’ margin lending ratio slightly increased after Jan. 20, signaling that professional traders added leverage long after Bitcoin broke above the $21,500 resistance.

One might argue that the demand for borrowing stablecoins for bullish positioning is far less than levels seen earlier in January. However, a stablecoin/BTC margin lending ratio above 30 is unusual and typically excessively optimistic.

More importantly, the current metric at 17 favors stablecoin borrowing by a wide margin and it indicates that shorts are not confident about building bearish leveraged positions.

Options traders flirt with an optimistic bias

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.

In short, the skew metric will move above 10% if traders fear a Bitcoin price crash. On the other hand, generalized excitement reflects a negative 10% skew.

The 25% delta skew flirted with the optimistic bias on Jan. 21 as the indicator reached the threshold at minus 10. The movement coincides with the 11.5% BTC price increase and its subsequent rejection at $23,375. From then on, options traders increased their risk aversion for unexpected price dumps.

Currently, near zero, the delta skew signals investors are pricing similar risks for the downside and the upside. So, from one side, the lack of demand from margin traders willing to short Bitcoin seems promising, but at the same time, options traders were not confident enough to become optimistic.

The longer Bitcoin remains above $22,500, the riskier it becomes for those betting on BTC price decline (shorts). Still, traditional markets continue to play an essential role in setting the trend, so the odds of another price pump ahead of the Fed’s decision on Feb. 1 are slim.

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 price corrected, but bulls are positioned to profit in Friday’s $580M BTC options expiry

Reduced inflationary pressure fueled crypto investors’ appetite for risk markets, eliminating the possibility of bears profiting from the $580 million Bitcoin options expiry on Jan. 20.

Bitcoin (BTC) price has held above $20,700 for 4 days, fueling bulls’ hope for another leg up to $23,000 or even $25,000. Behind the optimistic move was a decline in inflationary pressure, confirmed by the December 2022 wholesale prices for goods on Jan. 18.

The United States producer price index, which measures final demand prices across hundreds of categories also declined 0.5% versus the previous month.

Eurozone inflation also came in at 9.2% year-on-year in December, marking the second consecutive decline from October’s 10.7% record high. A milder-than-expected winter reduced the risk of a gas shortages and softened energy prices, boosting analysts’ hope of a “soft landing.” According to analysts, a soft landing would avoid a deep recession and possibly convince central banks to curb their interest rate hikes.

This week’s $580 million BTC options expiry on Jan. 20 looks like an easy win for bulls because the surprise seven-day, 23% rally above $21,000 caused most bearish bets to become worthless. The recent move has holders (or hodlers) calling a market bottom and the potential end to the bear market, but the options market might hold the answer.

Can Bitcoin options help bulls secure the $20,000 floor?

It might seem like a distant reality right now, but Bitcoin was trading below $17,500 just seven days ago. As the weekly options expiry on Jan. 20 approaches, the bullish bets are about to pay off, while bears will see their options becoming worthless as the deadline looms over them.

Bears’ main hope is the possibility of the U.S. Federal Reserve raising interest rates by 50 basis points at the next meeting, but that won’t take place until Feb. 1. The latest data on U.S. retail sales have shown a 1.1% retreat in December, the second consecutive spending cut. The odds are increasingly favorable for a 25 basis point interest rate increase, signaling that the central bank’s effort to curb inflation is achieving its expected results.

If bulls win on Jan. 20, they will likely add buying pressure and fuel the $20,000 support level.

Bitcoin bears were caught entirely off-guard

The open interest for the Jan. 20 options expiry is $580 million, but the actual figure will be lower since bears were decimated after Bitcoin breached $20,000. Bulls are in complete control, even though their payout becomes larger at $21,000 and higher.

*Bitcoin options aggregate open interest for Jan. 20. Source: Coinglass*

The 1.18 call-to-put ratio reflects the imbalance between the $150 million call (buy) open interest and the $125 million put (sell) options. If Bitcoin’s price remains above $17,000 at 8:00 am UTC on Jan. 13, less than $2 million worth of these put (sell) options will be available. This difference happens because the right to sell Bitcoin at $16,500 or $15,500 is useless if BTC trades above that level on expiry.

$21,000 Bitcoin would give bulls a $220 million profit

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

Between $19,000 and $20,000: 7,500 calls vs. 1,700 puts. The net result favors the call (bull) instruments by $110 million.
Between $20,000 and $21,000: 800 calls vs. 8,100 puts. The net result favors the call (bull) instruments by $165 million.
Between $21,000 and $22,000: 10,600 calls vs. 200 puts. The net result favors bulls by $220 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 push the price below $20,000 on Friday to minimize the loss. On the other hand, the bulls can double their gains by pumping the price above $21,000 on Jan. 20 and profiting by $220 million.

The 7-day rally toward $21,300 liquidated $1.2 billion worth of leverage short (sell) futures contracts, so they might have less margin required to subdue Bitcoin’s price.

For now, bulls are well positioned to profit from the BTC weekly options expiry and use the proceeds to defend the $20,000 support.

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.

Ethereum bounces above $1.2K, but derivatives metrics show traders fear a collapse

Demand for leverage buying remains absent in ETH despite the recent bounce to $1,200 as the U.S. Federal Reserve continues to hike interest rates.

Ether (ETH) gained 5.6% on Dec. 20 after testing the $1,150 support the previous day. Still, a bearish trend prevails, forming a three-week-long descending channel, a price action attributed to expectations of further U.S. Federal Reserve interest rate hikes.

*Ether/USD price index, 12-hour. Source: TradingView*

Jim Bianco, head of institutional research firm Bianco Research, said on Dec. 20 that the Fed will keep the economy tightening in 2023. Later that day, Japan’s central bank effectively raised interest rates, far later than its global counterparts. The unexpected move made analysts more bearish toward risk assets, including cryptocurrencies.

Ethereum might have caught some tailwind after the global payment processor Visa proposed a solution to allow automatic funding from Ethereum wallets. Auto-payments for recurring bills aren’t possible for self-custodial wallets, so Visa proposed relying on smart contracts, known as “account abstraction.” Curiously, the concept emerged in 2015 with Vitalik Buterin.

The most pressing issue, however, is regulation. On Dec. 19, the U.S. House Financial Services Committee reintroduced legislation aimed at creating innovation offices within government agencies dealing with financial services. According to North Carolina Representative Patrick McHenry, companies could apply for an “enforceable compliance agreement,” with offices located in agencies like the Securities and Exchange Commission and Commodity Futures Trading Commission.

Consequently, investors believe Ether could revisit sub-$1,000 prices as the DXY dollar index loses strength while the 10-year U.S. reasury yields show higher demand for protection. Trader CryptoCondom expects the next couple of months to be extremely bearish for crypto markets.

Algos see $DXY down & bid up crypto. BOJ overnight isn’t bullish…it’s a sign of things breaking.
DXY ⬇️ & 10Y ⬆️ = Recession
I will be shorting the market waiting for three digit $ETH.
Crypto IS the future of France but the next 2-3m will feel like being in the Gulag instead. pic.twitter.com/nLKqtNz3C3

— CryptoCondom (@crypto_condom) December 20, 2022

Let’s look at Ether derivatives data to understand if the bearish macroeconomic movement has negatively impacted investors’ sentiment.

The recent bounce above $1,200 did not instill bullishness

The two-month futures annualized premium should trade between +4% to +8% in healthy markets to cover costs and associated risks. When the futures trade at a discount versus regular spot markets, it shows a lack of confidence from leverage buyers, which is a bearish indicator.

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

The chart above shows that derivatives traders continue to use more leverage for short (bear) positions as the Ether futures premium remains negative. Still, the absence of leverage buyers’ demand does not mean traders expect further adverse price action.

For this reason, traders should analyze Ether’s options markets to understand whether investors are pricing higher odds of surprise adverse price movements.

Options traders not keen on offering downside protection

The 25% delta skew is a telling sign 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 10%. On the other hand, bullish markets tend to drive the skew indicator below -10%, meaning the bearish put options are discounted.

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

The delta skew increased after Dec. 15 from a fearful 14% against the protective put options to the current 20%. The movement signaled that options traders became even less comfortable with downside risks.

The 60-day delta skew signals whales and market makers are reluctant to offer downside protection, which seems natural considering the three-week-long descending channel.

In a nutshell, both options and futures markets point to pro traders not trusting the recent bounce above $1,200. The present trend favors Ether bears because the odds of the Fed maintaining its balance sheet reduction program seem high, which is destructive for risk markets.

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

Ether bounces above $1.2K, but derivatives metrics show traders fear a collapse

Demand for leverage buying remains absent in ETH despite the recent bounce to $1,200 as the U.S. Federal Reserve continues to hike interest rates.

Jim Bianco, head of institutional research firm Bianco Research, said on Dec. 20 that the Fed will keep the economy tightening in 2023. Later that day, Japan’s central bank effectively raised interest rates far later than its global counterparts. The unexpected move made analysts more bearish toward risk assets, including cryptocurrencies.

The most pressing issue, however, is regulation. On Dec. 19, the U.S. House Financial Services Committee reintroduced legislation aimed at creating innovation offices within government agencies dealing with financial services. According to North Carolina Representative Patrick McHenry, companies could apply for an “enforceable compliance agreement” with offices located in agencies like the Securities and Exchange Commission and Commodity Futures Trading Commission.

Consequently, investors believe Ether could revisit sub-$1,000 prices, as the U.S. Dollar Index (DXY) loses strength while the 10-year U.S. treasury yields show higher demand for protection. Trader CryptoCondom expects the next couple of months to be extremely bearish for crypto markets.

Algos see $DXY down & bid up crypto. BOJ overnight isn’t bullish…it’s a sign of things breaking.
DXY ⬇️ & 10Y ⬆️ = Recession
I will be shorting the market waiting for three digit $ETH.
Crypto IS the future of France but the next 2-3m will feel like being in the Gulag instead. pic.twitter.com/nLKqtNz3C3

— CryptoCondom (@crypto_condom) December 20, 2022

Let’s look at Ether derivatives data to understand if the bearish macroeconomic movement has negatively impacted investors’ sentiment.

The recent bounce above $1,200 did not instill bullishness

For this reason, traders should analyze Ether’s options markets to understand whether investors are pricing higher odds of surprise adverse price movements.

Options traders not keen on offering downside protection

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

The 60-day delta skew signals whales and market makers are reluctant to offer downside protection, which seems natural considering the three-week-long descending channel.

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

‘Forget a pivot’ — Markets won’t see Fed rate cut boost in 2023, says analyst

Bitcoin, stocks or else, there is now no light at the end of the Fed rate hike tunnel in 2023, says Jim Bianco.

Bitcoin (BTC) and other bulls will not benefit from a major change in United States inflation policy in 2023, one analyst says.

In a Twitter thread on Dec. 20, Jim Bianco, head of institutional research firm Bianco Research, said that the United State Federal Reserve would not “pivot” on rate hikes next year.

Bianco: Japan YCC move “matters for all markets”

In light of the surprise yield curve control (YCC) tweak by the Bank of Japan (BoJ), analysts have become all the more bearish on the prospects for risk assets this week.

As Cointelegraph reported, the move spelled immediate pain for the U.S. dollar, and with the Wall Street open in sight, equities futures were trending down in step at the time of writing.

For Bianco, the fact that the BoJ was now seeking to follow the Fed in tightening policy to ward off inflation meant that the latter was unlikely to loosen its own policy.

“Again, if JAPAN! is NOW hiking to changing policy NOW because of inflation, remind me why the Fed would be pivoting anytime in 2023?” part of one post read.

“The answer is they will not. You can forget a pivot.”

The real tangible consequences of Japan’s decision may only be felt later, Bianco continued. With bond yields rising, Japan should attract capital back home and away from the United States.

“The dollar is getting crushed against the Yen (or the Yen is soaring versus the dollar). Japan is getting a yield again. That should drive funds back into Japan,” he wrote.

A return to lowering interest rates is a key eventuality being priced in by markets beyond crypto, and this is something that simply no longer pays, Bianco said. Despite BTC/USD already down nearly 80% in just over a year in tandem with the Fed’s quantitative tightening (QT), the pain may thus still be far from over.

“Powell is hawkish,” he concluded, referring to last week’s speech by Fed Chair Jerome Powell, in which he sought to steer markets away from anticipating any policy loosening.

“ECB head Legarde (Madam Laggard) is now talking hawkish. Kuroda and the BoJ are (now) making moves that show concern about inflation. Markets may need to rethink their view about central banks pivoting.”

*Japan 10-year bond yield curve control (YCC) annotated chart. Source: Jim Bianco/Twitter*

Fidelity exec warns of “choppy” year

Other perspectives sought to offer a more hopeful view of the coming year while avoiding implicitly bullish language.

Jurrien Timmer, director of global macro at asset management giant Fidelity Investments, forecast 2023 as a “sideways” trading environment for equities.

“My sense is that 2023 will be a sideways choppy market, with one or more retests of the 2022 low, but not necessarily much worse than that,” he tweeted on Dec. 19.

“Either way, I don’t think we are close to a new cyclical bull market yet.”

*Market cycle comparison annotated chart. Source: Jurrien Timmer/Twitter*

In subsequent comments, Timmer added that while he believed a secular bull market had been in place ever since 2009, the “question is whether the secular bull market is still alive.”

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 options data shows bulls aiming for $17K BTC price by Friday’s expiry

BTC bulls could secure a $130 million profit in the Dec. 9 options expiry, but bears aim to balance the scales by keeping Bitcoin price below $17,000.

Bitcoin (BTC) price crashed to $15,500 on Nov. 21, driving the price to its lowest level in two years. The 2-day-long correction totaled an 8% downtrend and wiped out $230 million worth of leverage long (buy) futures contracts.

The price move gave the false impression to bears that a sub-$15,500 expiry on the Dec. 9 options expiry was feasible, but those bets are unlikely to pay off as the deadline approaches.

Year-to-date, Bitcoin price is 65% down for 2022, but the leading cryptocurrency remains a top 30 global tradable asset class ahead of tech giants like Meta Platforms (META), Samsung (005930.KS), and Coca-Cola (KO).

Investors’ main concern is still the possibility of a recession if the U.S. Federal Reserve raises rates for longer than expected. Proof of this comes from Dec. 2 data which showed that 263,000 jobs were created in November, signaling the Fed’s effort to slow the economy and bring down inflation remains a work in progress.

On Dec. 7, Wells Fargo director Azhar Iqbal wrote in a note to clients that “all told, financial indicators point to a recession on the horizon.” Iqbal added, “taken together with the inverted yield curve, markets are clearly braced for a recession in 2023.”

Bears were overly pessimistic and will suffer the consequences

The open interest for the Dec. 9 options expiry is $320 million, but the actual figure will be lower since bears were expecting sub-$15,500 price levels. These traders became overconfident after Bitcoin traded below $16,000 on Nov. 22.

*Bitcoin options aggregate open interest for Dec. 9. Source: CoinGlass*

The 1.19 call-to-put ratio reflects the imbalance between the $175 million call (buy) open interest and the $145 million put (sell) options. Currently, Bitcoin stands at $16,900, meaning most bearish bets will likely become worthless.

If Bitcoin’s price remains near $17,000 at 8:00 am UTC on Dec. 9, only $16 million worth of these put (sell) options will be available. This difference happens because the right to sell Bitcoin at $16,500 or $15,500 is useless if BTC trades above that level on expiry.

Bulls aim for $18k to secure a $130 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Dec. 9 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $15,500 and $16,500: 200 calls vs. 2,100 puts. The net result favors the put (bear) instruments by $30 million.
Between $16,500 and $17,000: 1,700 calls vs. 1,500 puts. The net result is balanced between bears and bulls.
Between $17,000 and $18,000: 5,500 calls vs. 100 puts. The net result favors the call (bull) instruments by $100 million.
Between $18,000 and $18,500: 7,300 calls vs. 0 puts. Bulls completely dominate the expiry by profiting $130 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 probably have less margin to support the price

Bitcoin bulls need to push the price above $18,000 on Friday to secure a potential $130 million profit. On the other hand, the bears’ best-case scenario requires a slight push below $16,500 to maximize their gains.

Bitcoin bulls just had $230 million leverage long positions liquidated in two days, so they might have less margin required to support the price.

Considering the negative pressure from traditional markets due to recession concerns and raising interest rates, bears will likely avoid a loss by keeping Bitcoin below $17,000 on Dec 9.

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 bears beware! BTC holds $17K as support while the S&P 500 drops 1.5%

BTC whales and market makers are holding their leveraged long positions, even though BTC failed to break above $17,400 on Dec. 5

Bitcoin (BTC) bulls regained some control on Nov. 30 and they were successful in keeping the BTC price above $16,800 for the past 5 days. While the level is lower than traders’ desired $19,000 to $20,000 target, the 8.6% gain since the Nov. 21 $15,500 low provides enough cushioning for eventual negative price surprises.

One of these instances is the United States stock market trading down 1.5% on Dec. 5 after a stronger-than-expected reading of November ISM Services fueled concerns that the U.S. Federal Reserve (Fed) will continue hiking interest rates. At the September meeting, Fed Chairman Jerome Powell indicated that the point of keeping interest rates flat “will need to be somewhat higher.”

Currently, the macroeconomic headwinds remain unfavorable and this is likely to remain the case until investors have a clearer picture of the employment market and foreign currency strength of the U.S. Dollar Index (DXY).

Excessively high levels lower the income of exporters and companies that rely on revenues outside the United States. A weak dollar also indicates a lack of confidence in the U.S. Treasury’s capacity to manage its $31.4 trillion debt.

The impact of the 2022 bear market continues to make waves as Bybit exchange decided to roll out a second round of layoffs on Dec. 4. Ben Zhou, co-founder and CEO of Bybit, announced a steep 30% reduction in the company’s workforce. The company had previously grown to over 2,000 employees in two years.

Let’s look at derivatives metrics to better understand how professional traders are positioned in the current market conditions.

Asia-based stablecoin demand drops after a 4% peak

The USD Coin (USDC) 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, the stablecoin’s market offer is flooded, causing a 4% or higher discount.

Currently, the USDC premium stands at 100.5%, down from 103.5% on Nov. 28, so despite the failed attempts to break above the $17,500 resistance, there was no panic selling from Asian retail investors.

However, this data should not be considered bullish because the recent USDC buying pressure up to a 4% premium indicates that traders took shelter in stablecoins.

Leverage buyers ignored the recent pump to $17,400

The long-to-short metric excludes externalities that might have solely impacted the stablecoin market. It also gathers data from exchange clients’ positions on the spot, perpetual and quarterly futures contracts, thus offering better information on how professional traders are positioned.

There are occasional methodological discrepancies between different exchanges, so readers should monitor changes instead of absolute figures.

*Exchanges’ top traders Bitcoin long-to-short ratio. Source: Coinglass*

Even though Bitcoin gained 5.5% in seven days, professional traders have kept their leverage long positions unchanged according to the long-to-short indicator.

The ratio for Binance traders improved from 1.05 on Nov. 28 to the current 1.09 level. Meanwhile, Huobi displayed a modest decrease in its long-to-short ratio, with the indicator moving from 1.07 to 1.03 in the seven days until Dec. 5.

At OKX exchange, the metric increased from 0.98 on Nov. 28 to the current 1.01 ratio. So, on average, traders have kept their leverage ratio during the week, which is disappointing data considering the price gain.

The $16.8 support is gaining strength, but derivatives show mild buying demand

These two derivatives metrics — stablecoin premium and top traders’ long-to-short — suggest that leverage buyers did not back the Bitcoin price rally to $17,400 on Dec. 5.

A more bullish sentiment would have moved the Asian stablecoin premium above 3% and the long-to-short ratio higher versus the previous week. The present data from those two markets reduce the odds of a sustainable rally above $17,400. Still, a 3.5% decline toward the $16,500 support should not cause concern because both metrics showed no sign of leveraged bearish bets being formed.

In short, the bearish sentiment prevails, but bears are becoming less confident even as Bitcoin price trades flat and the S&P 500 index declined by 1.5%.

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.