FED

Bitcoin price taps $21.3K ahead of Fed Chair Powell Jackson Hole speech

Daily lows greet Bitcoin traders as markets await fresh macro cues from the Fed.

Bitcoin (BTC) fell to daily lows on Aug. 26 as market nerves heightened into new macro triggers.

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

Pre-Fed blues hit BTC markets

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD dipping to $21,332 on Bitstamp ahead of fresh commentary from Jerome Powell, Chair of the United States Federal Reserve.

Part of the Fed’s Jackson Hole annual symposium, Powell was set to deliver a speech on the day that spectators hoped would provide new cues on economic policy going forward.

With U.S. Consumer Price Index (CPI) inflation slowing since June, interest remained high over the extent of key interest rate hikes in September.

Summarizing the current economic situation in the U.S., macro analyst David Hunter argued that the Fed would have no choice but to change course before the end of the year.

“Many signs we’re in recession w/economy continuing to decelerate,” he told Twitter followers this week:

“Composite PMIs at 45,housing rolling over fast,retail is weak,labor conditions are deteriorating.Overseas is even worse.And inflation is rolling over & likely will surprise on the downside.Fed will pause this fall.”

According to CME Group’s FedWatch Tool, however, a majority still favored a repeat of July’s 75-basis-point rise.

*Fed target rate probabilities chart. Source: CME Group*

Trading range endures

Bitcoin circles meanwhile kept an eye on potential volatility going into this year’s Jackson Hole.

“We often see an increase in volatility just before FED announcements, but that may be limited if some of the near range liquidity doesn’t get cleared out,” on-chain analytics resource Material Indicators wrote in part of comments on the day.

An accompanying chart showed buy and sell levels on the Binance order book, these strengthening closer to spot at the time of writing, reducing the potential for a breakout.

*BTC/USD buy and sell levels chart (Binance). Source: Material Indicators/ Twitter*

Continuing, Keith Alan nonetheless predicted that an end to the sideways price action (PA) of recent days would have to enter.

“PA will be forced to make a directional move out of the micro-structure very soon,” he explained:

“Normally I would be eager to scalp the volatility that usually front runs a JPow conference, but the R:R ratio in the active range sucks. Might consider scalping a breakout above the 50 MA.”

On the topic of price targets, Cointelegraph contributor Michaël van de Poppe flagged $21,000 as a key level to hold in the event of additional downside.

Retesting $21,800, on the other hand, could result in a breakout above $23,000.

#Bitcoin is boring, as we anticipate reactions based on tomorrow’s news (PCE numbers and Powell’s speech).

Overall, on a support block now and;
– Tomorrow can result in fake-outs.

– Testing $21.8K will likely result in acceleration to $23.2K.
– Crucial to stay above $21K. pic.twitter.com/LYNRnHpnkh

— Michaël van de Poppe (@CryptoMichNL) August 25, 2022

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.

Options data shows Bitcoin’s short-term uptrend is at risk if BTC falls below $23K

BTC’s $335 million options expiry has become a death trap for bulls, and increased legal action by the SEC and IRS against crypto companies is adding to the sell pressure.

Bitcoin (BTC) briefly broke above $25,000 on Aug. 15, but the excitement lasted less than an hour and was followed by a 5% retrace in the next five hours. The resistance level proved to be tougher than expected but may have given bulls false hope for the upcoming $335 million weekly options expiry.

Investors’ fleeting optimism reverted to a sellers’ market on Aug. 17 after BTC dumped and tested the $23,300 support. The negative move took place hours before the release of the Federal Open Markets Committee (FOMC) minutes from its July meeting. Investors expect some insights on whether the Federal Reserve will continue raising interest rates.

The negative newsflow accelerated on Aug. 16 after a federal court in the United States authorized the U.S. Internal Revenue Service (IRS) to force cryptocurrency broker SFOX to reveal the transactions and identities of customers who are U.S. taxpayers . The same strategy was used to obtain information from Circle, Coinbase and Kraken between 2018 and 2021.

This movement explains why betting on Bitcoin price above $25,000 on Aug. 19 seemed like a sure thing a couple of days ago, and this would have incentivized bullish bets.

Bears didn’t expect BTC to move above $24,000

The open interest for the Aug. 19 options expiry is $335 million, but the actual figure will be lower since bears were overly-optimistic. These traders might have been fooled by the short-lived dump to $22,700 on Aug. 10 because their bets for Aug’s options expiry extend down to $15,000.

*Bitcoin options aggregate open interest for Aug. 19. Source: Coinglass*

The 1.29 call-to-put ratio shows the difference between the $188 million call (buy) open interest and the $147 million put (sell) options. Currently, Bitcoin stands near $23,300, meaning most bullish bets are likely to become worthless.

If Bitcoin’s price moves below $23,000 at 8:00 am UTC on Aug. 19, only $1 million worth of these call (buy) options will be available. This difference happens because a right to buy Bitcoin at $23,000 is useless if BTC trades below that level on expiry.

There’s still hope for bulls, but $25,000 seems distant

Below are the three most likely scenarios based on the current price action. The number of options contracts available on Aug. 19 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $21,000 and $23,000: 30 calls vs. 2,770 puts. The net result favors the put (bear) instruments by $60 million.
Between $23,000 and $25,000: 940 calls vs. 1,360 puts. The net result is balanced between bulls and bears.
Between $25,000 and $26,000: 3,330 calls vs. 100 puts. The net result favors the call (bull) instruments by $80 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.

Bears will try to pin Bitcoin below $23,000

Bitcoin bulls need to push the price above $25,000 on Aug. 19 to profit $80 million. On the other hand, the bears’ best case scenario requires pressure below $23,000 to maximize their gains.

Bitcoin bulls just had $144 million in leveraged futures long positions liquidated on Aug. 16, so they should have less margin to drive the price higher. With this said, bears have the upper hand to suppress BTC below $23,000 ahead of the Aug. 19 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 price dives pre-FOMC amid warning $17.6K low was not the bottom

The bottom “is not in” for either stocks or crypto, one analyst believes, as alarming data shows copycat moves from 2008 by the S&P 500.

Bitcoin (BTC) dropped to weekly lows at the Aug. 17 Wall Street open as upcoming Federal Reserve comments unsettled risk assets.

Dollar climbs as Fed minutes due

Data from Cointelegraph Markets Pro and TradingView tracked a more than 2% daily decline in BTC/USD, which hit $23,325 on Bitstamp.

Already showing signs of weakness, the pair slid further as United States equities began trading, hours before the Federal Open Markets Committee (FOMC) was due to release minutes from its latest meeting.

While not involving a decision on interest rates, the meeting was cued to give an insight into the Fed’s thinking in terms of the next rate tweak due in September.

“The important event tonight with the FOMC minutes, through which information can be received whether the FED is going to be hawkish or dovish,” Cointelegraph contributor Michaël van de Poppe summarized in his latest Twitter update.

“I don’t think it will have a massive impact, however, crypto tends to give it a ton of value and, therefore, lots of volatility.”

Stocks had hit major resistance in line with crypto during the week, leading some concerned sources to continue to predict a further major retracement across the board.

Justin Bennett, the founder of crypto education platform Crypto Academy, warned that the S&P 500 was copying behavior from immediately prior to the 2008 Global Financial Crisis.

“This is mind-blowing. The S&P 500 is mimicking the 2008 crash. Even the timing since the ATH is nearly identical,” he commented on a comparative chart.

“The bottom is NOT in for stocks or crypto.”

A telltale sign on the day came in the form of an advancing U.S. dollar, with the U.S. dollar index (DXY) seeking to attack resistance in place throughout August.

“$DXY could be on its way to 112-113 after the fakeout below 105.50. That’s going to weigh on stocks and crypto,” Bennett added.

*U.S. dollar index (DXY) 1-day candle chart. Source: TradingView*

Buyers eye lower bids

On shorter timeframes, the trend on Bitcoin was also rapidly losing steam as bid support inched down the Binance order book.

On-chain monitoring resource Material Indicators captured the action, concluding that “even if we get another pump, still believe the Bear Market Rally is losing momentum.”

An upside target could come in the form of the 100-day moving average, a separate post explained, lying at $24,544 at the time of writing.

“Been warning about this breakdown for Bitcoin the past few days,” commentator Matthew Hyland concluded.

“Structure has shifted overall weak recently. Market seemed to have its first signs of life just last week. That seems to be short lived.”

*BTC/USD buy and sell levels (Binance). Source: Material Indicators/ Twitter*

Crypto markets bounced and sentiment improved, but retail has yet to FOMO

The total crypto market capitalization is rising toward $1.25 trillion, but an assortment of metrics show retail and institutions are not ready to “ape.”

An ascending triangle formation has driven the total crypto market capitalization toward the $1.2 trillion level. The issue with this seven-week-long setup is the diminishing volatility, which could last until late August. From there, the pattern can break either way, but Tether and futures markets data show bulls lacking enough conviction to catalyze an upside break.

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

Investors cautiously await further macroeconomic data on the state of the economy as the United States Federal Reserve (FED) raises interest rates and places its asset purchase program on hold. On Aug. 12, the United Kingdom posted a gross domestic product (GDP) contraction of 0.1% year-over-year. Meanwhile, inflation in the U.K. reached 9.4% in July, the highest figure seen in 40 years.

The Chinese property market has caused the Fitch Ratings credit agency to issue a “special report” on Aug. 7 to quantify the impact of prolonged distress on a potentially weaker economy in China. Analysts expect asset management and smaller construction and steel-producing companies to suffer the most.

In short, risk asset investors are anxiously waiting for the Federal Reserve and Central Banks across the world to signal that the policy of tightening is coming to an end. On the other hand, expansionary policies are more favorable for scarce assets, including cryptocurrencies.

Sentiment improves to neutral after 4 months

The risk-off attitude caused by increased interest rates has instilled a bearish sentiment into cryptocurrency investors since mid-April. As a result, traders have been unwilling to allocate to volatile assets and sought shelter in U.S. Treasuries, even though their returns do not compensate for inflation.

*Crypto Fear & Greed Index. Source: alternative.me*

The Fear and Greed Index hit 6/100 on June 19, near the lowest ever reading for this data-driven sentiment gauge. However, investors moved away from the “extreme fear” reading during August as the indicator held a 30/100 level. On Aug. 11, the metric finally entered a “neutral” area after a fou-month-long bearish trend.

Below are the winners and losers from the past seven days as the total crypto capitalization increased 2.8% to $1.13 trillion. While Bitcoin (BTC) presented a mere 2% gain, a handful of mid-capitalization altcoins jumped 13% or more in the period.

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

Celsius (CEL) jumped 97.6% after Reuters reported that Ripple Labs displayed interest in acquiring Celsius Network and its assets which are currently under bankruptcy.

Chainlink (LINK) rallied 17% after announcing on Aug. 8 that it would no longer support the upcoming Ethereum proof-of-work (PoW) forks that occur during the Merge.

Avalanche (AVAX) gained 14.6% after being listed for trading on Robinhood on Aug. 8.

Curve DAO (CRV) lost 6% after the nameserver for the Curve.Fi website was compromised on Aug 9. The team quickly addressed the problem, but the front-end hack caused some of its users’ losses.

Market may have rallied, but retail traders are neutral

The OKX Tether (USDT) premium is a good gauge of China-based retail crypto trader demand. It measures the difference between China-based peer-to-peer (P2P) 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 and causes a 4% or higher discount.

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

On Aug. 8, the Tether price in Asia-based peer-to-peer markets entered a 2% discount, signaling moderate retail selling pressure. More importantly, the metric has failed to improve while the total crypto capitalization gained 9% in 10 days, indicating weak demand from retail investors.

To exclude externalities specific to the Tether instrument, traders must also analyze futures markets. 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.

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 perpetual futures funding rate on Aug. 12. Source: Coinglass*

Perpetual contracts reflected a neutral sentiment after Bitcoin and Ether held a slightly positive (bullish) funding rate. The current fees imposed on bulls are not concerning and resulted in a balanced situation between leveraged longs and shorts.

Further recovery depends on the Federal Reserve

According to derivatives and trading indicators, investors are less inclined to increase their positions at current levels, as shown by the Tether discount in Asia and the absence of a positive funding rate in futures markets.

These neutral-to-bearish market indicators are worrisome, given that total crypto capitalization has been in a seven-week uptrend. Investors’ distress over Chinese property markets and further FED tightening movements is the most likely explanation.

For now, the odds of the ascending triangle breaking above the projected $1.25 trillion mark seem low, but further macroeconomic data is needed to estimate the direction central banks might take.

$29K Bitcoin is closer than you might expect, according to derivatives data

Derivatives data show a clear path to $29,000, but inflation and unemployment data will continue to be crucial to determining BTC price rallies.

Bitcoin (BTC) price continues to battle at the $24,000 resistance and the price was rejected there on Aug. 10, but the rejection was not enough to knock the price out of the 52-day-long ascending channel. The channel has a $22,500 support and this bullish formation suggests that the BTC price will eventually hit the $29,000 level by early October.

*Bitcoin/USD 12-hour price. Source: TradingView*

Bitcoin derivatives data does show a lack of interest from leveraged longs (bulls), but at the same time, it does not price higher odds of a surprise crash. Curiously, the most recent Bitcoin downturn on Aug. 9 was accompanied by a negative performance from U.S.-listed stocks.

On Aug. 8, chip and video graphics card maker Nvidia Corp (NVDA) announced that its 2Q sales would present a 19% drop compared to the previous quarter. Moreover, the U.S. Senate passed a bill on Aug. 6 that could negatively impact corporate earnings. Despite freeing $430 billion to fund “climate, healthcare and tax,” the provision would impose a 1% tax on the stock buyback by publicly traded companies.

The high correlation of traditional assets to cryptocurrencies remains a huge concern for some investors. Investors should not be getting ahead of themselves even if inflationary pressure recedes because the U.S. Fed monitors employment data very closely. The latest reading displayed a 3.5% unemployment typical of overly heated markets, forcing the monetary authority to keep raising interest rates and revoking stimulus debt purchase programs.

Reducing risk positions should be the norm until investors clearly indicate that the U.S. Central Bank is closer to easing the tighter monetary policies. That is precisely why crypto traders are following macroeconomic numbers so closely.

Currently, Bitcoin lacks the strength to break the $24,000 resistance, but traders should study derivatives to gauge professional investors’ sentiment.

Bitcoin derivatives metrics are neutral-to-bearish

The Bitcoin futures annualized premium measures the difference between longer-term futures contracts and the current spot market levels. The indicator should run between 4% to 8% to compensate traders for “locking in” the money until the contract expiry. Thus, levels below 2% are extremely bearish, while the numbers above 10% indicate excessive optimism.

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

The above chart shows that this metric dipped below 4% on June 1, reflecting traders’ lack of demand for leverage long (bull) positions. However, the present 2% reading is not particularly concerning, given that BTC is down 51% year-to-date.

To exclude externalities specific to the futures instrument, traders must also analyze Bitcoin options markets. The 25% delta skew is a telling sign whenever arbitrage desks and market makers overcharge for upside or downside protection.

If those traders 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*

Data shows that the skew indicator has been ranging between 3% and 5% since Aug. 5, which is deemed to be a neutral area. Options traders are no longer overcharging for downside protection, meaning they might lack excitement, but at least they have abandoned the “fear” sentiment seen in the last few months.

Considering Bitcoin’s current ascending channel pattern, Bitcoin investors probably should not worry too much about the lack of buying demand, according to futures market data.

Of course, there is healthy skepticism reflected in derivatives metrics, but the path to a $29,000 BTC price remains clear as long as inflation and employment statistics are under control.

Fed reverse repo reaches $2.3T, but what does it mean for crypto investors?

Investors avoid risk assets during a crisis, but excessive cash sitting in financial institutions could also be good for the cryptocurrencies.

The U.S. Federal Reserve (FED) recently initiated an attempt to reduce its $8.9 trillion balance sheet by halting billions of dollars worth of treasuries and bond purchases. The measures were implemented in June 2022 and coincided with the total crypto market capitalization falling below $1.2 trillion, the lowest level seen since January 2021.

A similar movement happened to the Russell 2000, which reached 1,650 points on June 16, levels unseen since November 2020. Since this drop, the index has gained 16.5%, while the total crypto market capitalization has not been able to reclaim the $1.2 trillion level.

This apparent disconnection between crypto and stock markets has caused investors to question whether the Federal Reserve’s growing balance sheet could lead to a longer than expected crypto winter.

The FED will do whatever it takes to combat inflation

To subdue the economic downturn caused by restrictive government-imposed measures during the Covid-19 pandemic, the Federal Reserve added $4.7 trillion to bonds and mortgage-backed securities from January 2020 to February 2022.

The unexpected result of these efforts was 40-year high inflation and in June, U.S. consumer prices jumped by 9.1% versus 2021. On July 13, President Joe Biden said that the June inflation data was “unacceptably high.” Furthermore, Federal Reserve chair Jerome Powell stated on July 27:

“It is essential that we bring inflation down to our 2 percent goal if we are to have a sustained period of strong labor market conditions that benefit all.”

That is the core reason the central bank is withdrawing its stimulus activities at an unprecedented speed.

Financial institutions have a cash abundance issue

A “repurchase agreement,” or repo, is a short-term transaction with a repurchase guarantee. Similar to a collateralized loan, a borrower sells securities in exchange for an overnight funding rate under this contractual arrangement.

In a “reverse repo,” market participants lend cash to the U.S. Federal Reserve in exchange for U.S. Treasuries and agency-backed securities. The lending side comprises hedge funds, financial institutions and pension funds.

If these money managers are unwilling to allocate capital to lending products or even offer credit to their counterparties, then having so much cash at disposal is not inherently positive because they must provide returns to depositors.

*Federal Reserve overnight reverse repurchase agreements, USD. Source: St. Louis FED*

On July 29, the Federal Reserve’s Overnight Reverse Repo Facility hit $2.3 trillion, nearing its all-time high. However, holding this much cash in short-term fixed income assets will cause investors to bleed in the long term considering the current high inflation. One thing that is possible is that this excessive liquidity will eventually move into risk markets and assets.

While the record-high demand for parking cash might signal a lack of trust in counterparty credit or even a sluggish economy, for risk assets, there is the possibility of increased inflow.

Sure, if one thinks the economy will tank, cryptocurrencies and volatile assets are the last places on earth to seek shelter. However, at some point, these investors will not take further losses by relying on short-term debt instruments that do not cover inflation.

Think of the Reverse Repo as a “safety tax,” a loss someone is willing to incur for the lowest risk possible — the Federal Reserve. At some point, investors will either regain confidence in the economy, which positively impacts risk assets or they will no longer accept returns below the inflation level.

In short, all this cash is waiting on the sidelines for an entry point, whether real estate, bonds, equities, currencies, commodities or crypto. Unless runaway inflation magically goes away, a portion of this $2.3 trillion will eventually flow to other assets.

Bitcoin bulls aim for $25K price on Friday’s $510M options expiry

BTC price has been gaining momentum as it nears $24,000, and this week’s options expiry could help bulls profit $200 million.

Fifty-one days have passed since Bitcoin (BTC) last closed above $24,000, causing even the most bullish trader to question whether a sustainable recovery is feasible. However, despite the lackluster price action, bulls have the upper hand on Friday’s $510 million BTC options expiry.

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

Investors have been reducing their risk exposure as the Federal Reserve raises interest rates and unwinds its record $8.9 trillion balance sheet. As a result, the Bloomberg Commodity Index (BCOM), which measures price changes in crude oil, natural gas, gold, corn and lean hogs, has traded down 9% in the same period.

Traders continue to seek protection via U.S. Treasuries and cash positions as San Francisco Fed president Mary Daly said on Aug. 2 that the central bank’s fight against inflation is “far from done.” With that being said, the tighter monetary impact on inflation, employment levels and the global economy are yet to be seen.

Bearish bets are mostly below $22,000

Bitcoin’s recovery above $22,000 on July 27 took bears by surprise because only 28% of the put (sell) options for Aug. 5 have been placed above such a price level. Meanwhile, Bitcoin bulls may have been fooled by the $24,500 pump on July 30, as 59% of their bets lay above $25,000.

*Bitcoin options aggregate open interest for Aug. 5. Source: CoinGlass*

A broader view using the 1.60 call-to-put ratio shows more bullish bets because the call (buy) open interest stands at $315 million against the $195 million put (sell) options. Nevertheless, as Bitcoin currently sits above $23,000, most bearish bets will likely become worthless.

For instance, if Bitcoin’s price remains above $23,000 at 8:00 am UTC on Aug. 5, only $19 million worth of these put (sell) options will be available. This difference happens because there is no use in a right to sell Bitcoin at $22,000 or $20,000 if it trades above that level on expiry.

Bulls might pocket a $200 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Aug. 5 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $20,000 and $22,000: 100 calls vs. 3,700 puts. The net result favors bears by $75 million.
Between $22,000 and $24,000: 1,400 calls vs. 1,600 puts. The net result is balanced between call (buy) and put (sell) instruments.
Between $24,000 and $25,000: 3,800 calls vs. 100 puts. The net result favors bulls to $90 million.
Between $25,000 and $26,000: 0 calls vs. 7,900 puts. Bulls extend their gains to $200 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.

Bears have less margin required to suppress Bitcoin price

Bitcoin bulls need to push the price above $24,000 on Aug. 5 to secure a $90 million profit. On the other hand, the bears’ best-case scenario requires pressure below $22,000 to set their gains at $75 million.

However, Bitcoin bears had $140 million leverage short positions liquidated on July 26-27, according to data from Coinglass. Consequently, they have less margin required to push the price lower in the short term.

The most probable scenario is a draw, causing the Bitcoin price to range between $22,000 and $24,000 ahead of the Aug. 5 options expiry.

Bitcoin derivatives show a lack of confidence from bulls

High correlation to stock markets and recession risks limit optimism on the part of BTC investors.

Bitcoin (BTC) has been trending up since mid-July, although the current ascending channel formation holds $21,100 support. This pattern has been holding for 45 days and could potentially drive BTC towards $26,000 by late August.

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 correlation to traditional assets is the main source of investors’ distrust, especially when pricing in recession risks and tensions between the United States and China ahead of House Speaker Nancy Pelosi’s visit to Taiwan. According to CNBC, Chinese officials threatened to take action if Pelosi moved forward.

The U.S. Federal Reserve’s recent interest rate hikes to curb inflation brought further uncertainty for risk assets, limiting crypto price recovery. Investors are betting on a “soft landing,” meaning the central bank will be able to gradually revoke its stimulus activities without causing significant unemployment or recession.

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

*S&P 500 and Bitcoin/USD 40-day correlation. Source: TradingView*

As displayed above, the S&P 500 and Bitcoin 40-day correlation currently stands at 0.72, which has been the norm for the past four months.

On-chain analysis corroborates longer-term bear market

Blockchain analytics firm Glassnode’s “The Week On Chain” report from Aug. 1 highlighted Bitcoin’s weak transaction and the demand for block space resembling the 2018–19 bear market. The analysis suggests a trend-breaking pattern would be required to signal new investor intake:

“Active Addresses [14 days moving average] breaking above 950k would signal an uptick in on-chain activity, suggesting potential market strength and demand recovery.”

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

Bitcoin derivatives metrics show no signs of “fear” from pro traders

Retail traders usually avoid monthly futures due to their fixed settlement date and price difference from spot markets. On the other hand, arbitrage desks and professional traders opt for monthly contracts due to the lack of a fluctuating funding rate.

These fixed-month contracts usually trade at a slight premium to regular spot markets as sellers demand more money to withhold settlement longer. Technically known as “contango,” this situation is not exclusive to crypto markets.

In healthy markets, futures should trade at a 4% to 8% annualized premium, enough to compensate for the risks plus the cost of capital. However, according to the above data, Bitcoin’s futures premium has been below 4% since June 1. The reading is not particularly concerning given that BTC is down 52% year-to-date.

To exclude externalities specific to the futures instrument, traders must also analyze Bitcoin options markets. For instance, the 25% delta skew signals when Bitcoin whales and market makers are overcharging for upside or downside protection.

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

The skew indicator has been below 12% since July 17, considered a neutral area. As a result, options traders are pricing similar risks for both bullish and bearish options. Not even the retest of the $20,750 support on July 26 was enough to instill “fear” in derivatives traders.

Bitcoin derivatives metrics remain neutral despite the rally toward $24,500 on July 30, suggesting that professional traders are not confident in a sustainable uptrend. Thus, data shows that an unexpected move above $25,000 would take professional traders by surprise. Taking a bullish bet might seem contrarian right now, but simultaneously, it creates an interesting risk-reward situation.

Bitcoin rallies after Fed interest rate hike, but bears can still win Friday’s $1.76B options expiry

BTC bears aim for a $360 million profit in July 29’s $1.76 billion monthly options expiry, but the FOMC interest rate decision could play a decisive factor.

Bitcoin’s (BTC) price has been stuck in a descending channel since July 20 and it is currently heading toward the $20,000 support by the end of July. Adding to this bearish price action, BTC is down 50% year-to-date, while U.S. listed tech stocks, as measured by the Nasdaq-100 index, accumulated a 24% loss.

*Bitcoin USD price index, 4-hour. Source: TradingView*

As the U.S. Federal Reserve tightens its economic policies by raising interest rates and scaling back debt asset purchases, risk assets have reacted negatively. Fed chair Jerome Powell is set to wrap up a two-day meeting on July 27 and market analysts expect a nominal 0.75% interest rate hike.

Tensions in Europe escalate as the Russian state-controlled gas company Gazprom is slated to cut supplies to the Nord Stream 1 pipeline starting on July 27. According to CNBC, the company blames a turbine maintenance issue, but European officials think otherwise.

Aiding tech stocks’ performance on July 27 was the U.S. Senate approval of the “Chips and Science” bill, which provides $52 billion in subsidies backed by debt and taxes for U.S. semiconductor production. An additional $24 billion of credits for the sector is estimated, aiming to boost the research to compete with China.

For these reasons, traders have mixed feelings about the upcoming Fed announcement and the impact of a global crisis on cryptocurrency markets. As long as Bitcoin’s correlation to traditional markets remains high, especially tech stocks, investors will seek protection by moving away from risk-on asset classes such as cryptocurrencies.

Bulls placed their hope on $24,000 and higher

The open interest for the July 29 Bitcoin monthly options expiry is $1.76 billion, but the actual figure will be lower since bulls were caught by surprise as BTC failed to break the $24,000 resistance on July 20.

*Bitcoin options aggregate open interest for July 29. Source: CoinGlass*

The 1.18 call-to-put ratio reflects the $950 million call (buy) open interest against the $810 million put (sell) options. Nevertheless, as Bitcoin stands below $23,000, most of the bullish bets will likely become worthless.

For instance, if Bitcoin’s price remains below $23,000 on July 29, bulls will only have $145 million worth of these call (buy) options. This difference happens because there is no use in a right to buy Bitcoin at $23,000 if it trades below that level on July 29 at 8:00 am UTC.

Bears can secure a $360 million profit on Friday

Below are the four most likely scenarios based on the current price action. The number of options contracts available on July 29 for call (buy) and put (sell) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $19,000 and $20,000: 400 calls (buy) vs. 19,300 puts (sell). The net result favors bears by $360 million.
Between $20,000 and $22,000: 3,900 calls (buy) vs. 11,800 puts (sell). Bears have a $230 million advantage.
Between $22,000 and $24,000: 10,300 calls (buy) vs. 8,600 puts (sell). The net result is balanced between bulls and bears.
Between $24,000 and $25,000: 14,400 calls (buy) vs. 7,100 puts (sell). Bulls have a $175 million advantage.

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 pressure the price below $20,000 on July 29 to secure a $360 million profit. On the other hand, bulls can avoid a loss by pushing BTC above $22,000, balancing the valid bets from both sides. Bulls seem heavily vested to put their losses behind and start August with a clean sheet, but it could still go either way.

IMF global outlook suggests dark clouds ahead for crypto

The IMF has forecast economic growth to slow from 6.1% last year to 3.2% in 2022, which some believe will have negative consequences for crypto.

Investors are warning of further volatility in the digital asset markets as the International Monetary Fund (IMF) forecasts a slowdown in global economic growth.

The IMF’s July update on the World Economic Outlook titled “Gloomy and More Uncertain” points to “higher-than-expected inflation,” and a contraction of global output as indicators of incoming poor economic growth. The report states in succinct terms that there are likely economic slowdowns ahead:

“The risks to the outlook are overwhelmingly tilted to the downside.”

Macro factors have been linked to the crypto bear market, prompting crypto analyst Miles Deutscher to warn his 154,000 Twitter followers to expect volatility in the markets.

He noted the incoming earnings reports from Microsoft, Google, Apple and Meta, along with the gross domestic product (GDP) numbers from the United States, could create further turbulence.

It’s going to be a massive week for the markets.

July 26: FOMC Meeting, Microsoft & Google Earnings
July 27: Meta Earnings
July 28: US Q2 GDP Release, Apple Earnings

Volatility incoming.

— Miles Deutscher (@milesdeutscher) July 25, 2022

Crypto investors are also bracing for a rise in interest rates in the United States this week. Bloomberg reported on Tuesday that the Fed is expected to raise rates by as much as 75 basis points, or 0.75%, up to 2.25% in an attempt to tighten its monetary policy and stump inflation.

There are also industry observers who expect the U.S. to be officially in recession when the Q2 GDP figures for the country are published on July 28. Investopedia defines a recession as two consecutive quarters of negative GDP growth.

Major market moving events this week for #bitcoin, #crypto, and #stocks.

– Corporate earnings reports starting
– FED Meeting (27th)
– US GDP Q2 data release (28th)

White House already getting in front of what must be bad data saying it is time to change the definition! LOL!

— Lark Davis (@TheCryptoLark) July 26, 2022

Crypto market YouTuber DustyBC tweeted on Tuesday that the global slowdown coupled with potentially reduced U.S. GDP numbers could explain why Bitcoin (BTC) price dipped below $21,000.

International Monetary Fund (IMF) released its July 2022 World Economic Outlook, forecasting significant slowdown in global growth which should average 3.2% this year and 2.9% in 2023.

This + tomorrow’s FOMC meeting could explain why #BTC dipped below $21,000

— DustyBC Crypto (@TheDustyBC) July 26, 2022

Meanwhile, founder of Cosmos-based cross-chain decentralized finance (DeFi) hub Umee Brent Xu asked on Monday in a tweet, “Does a macro recession = a crypto recession?”

Cointelegraph quoted the Material Indicators Twitter account on Monday, reporting that there is “no guarantee that any support holds” after the GDP and interest rate numbers are announced. It added that there may be several days of volatility, echoing Deutscher’s observations.

Elizabeth Gail wrote in Cointelegraph on Tuesday that Bitcoin markets were likely to recover when the uncertainty about the current state of the economy and geopolitical tensions are resolved. However, there is no telling how long that will take.

While the economic outlook looks gloomy, the IMF pointed out that the sell-offs in crypto since May due to liquidations, bankruptcies and losses at major firms like Celsius, Three Arrows Capital and Voyager Digital Holdings have had little impact on other financial systems.

This suggests that as the broader financial systems can have a massive effect on crypto, the same cannot be said the other way around:

“Crypto assets have experienced a dramatic sell-off that has led to large losses in crypto investment vehicles and caused the failure of algorithmic stablecoins and crypto hedge funds, but spillovers to the broader financial system have been limited so far.”

As of the time of writing, the total crypto market cap is sitting just barely over $1 trillion, according to the TCAP Index.

Disappointing earnings reports and GDP numbers this week could spoil these levels as Cointelegraph reported on Monday that investors are already starting to seek shelter in fiat in preparation for the worst.