Futures

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

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

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

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

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

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

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

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

Bulls placed their bets at $2,100 and higher

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

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

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

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

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

Bears aim for a $325 million profit

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

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

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

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

Bulls should throw the towel and focus on the June expiry

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

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

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

Bankman-Fried faces down roomful of futures industry insiders at CFTC roundtable

The discussion of FTX.US’s proposal for non-intermediated margined products clearing highlighted unknown factors and the need for more regulatory framework.

FTX CEO Sam Bankman-Fried did a lot of talking at the United States Commodity Futures Trading Commission (CFTC) staff roundtable on non-intermediation Wednesday. He fielded questions and issues from 31 industry professionals about the FTX.US application to offer clearing of margined products, including crypto-based products, without a futures commission merchant (FCM) intermediary. 

Many participants felt the need to mention their devotion to innovation and declared that they do not see the proposed new technology as an “us versus them” situation. Joe Cisewski of Pantera Capital said that just six or eight clearing firms dominate the U.S. market at present, so new competition would not be out of place. Like many others present, he saw the need for more regulatory framework for this new trading model.

“We don’t know what a crypto margin is,” said Hilary Allen, professor of law at American University. Allison Lurton of the Futures Industry Association (FIA) emphasized that FCM regulations are prescriptive and not principles-based because of the merchants’ “core position” in the system, and many rules and regulations would have to be revised for the proposed non-intermediated trading system.

Christine Parker of Coinbase said, “We don’t really have a good view of what a retail trader in the crypto space […] would design in a market.” Parker, commenting on the company’s experience outside the U.S., said crypto trading does not follow the patterns of traditional commodities. She was one of several people who considered trading options abroad superior to those in the U.S.

Several people also pointed out the ways in which the current system intentionally differs from the automated solution FTX is proposing. The framework for 24-hour clearing already exists, Lurton and others pointed out, but there are reasons not to use it. The proposed trading algorithm would have to respond to unexpected situations, Allen said, noting:

“That’s not what algorithms do, […] that’s what regulators are for.”

Todd Phillips of the Center for American Progress suggested that the role of the CFTC is to make sure investment products are appropriate for consumers. Possible round-the-clock clearing “isn’t something we want our retail investors getting into,” he said. Bankman-Fried took umbrage at this suggestion, calling it condescending and saying that “a lot of people know more than the people in this room” about margined trading.

“I was expecting something far more contentious,” moderator Robert Steigerwald of the Federal Reserve Bank of Chicago said later in the six-and-a-half-hour session.

Weak stocks and declining DeFi use continue to weigh on Ethereum price

Crumbling tech stock prices, declining DApp use and bearish derivatives data continue to pin ETH price below $2,000.

Ether’s (ETH) 12-hour closing price has been respecting a tight $1,910 to $2,150 range for twelve days, but oddly enough, these 13% oscillations have been enough to liquidate an aggregate of $495 million in futures contracts since May 13, according to data from Coinglass.

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

The worsening market conditions were also reflected in digital asset investment products. According to the latest edition of CoinShare’s weekly Digital Asset Fund Flows report, crypto funds and investment products saw a $141 million outflow during the week ending on May 20. In this instance, Bitcoin (BTC) was the investors’ focus after experiencing a $154 weekly net redemption.

Russian regulation and crumbling U.S. tech stocks escalate the situation

Regulatory uncertainty weighed on investor sentiment after an updated version of the Russian mining law proposal came to light on May 20. The document in the lower chamber of the Russian parliament no longer contained the obligation for a crypto mining operators registry nor the one-year tax amnesty. As cited by local media, the legal department of the Duma stated that these measures could “possibly incur costs on the federal budget.”

Additional pressure on Ether price came from the Nasdaq Composite Index’s 2.5% downturn on May 24. In addition, the heavily-tech stock-driven indicator was pressured after social media platform Snap (SNAP) tumbled 40%, citing rising inflation, supply chain constraints and labor disruptions. Consequently, Meta Platforms (FB) shares fell by 10%.

On-chain data and derivatives are in favor of bears

The number of active addresses on the largest Ethereum network’s decentralized applications (DApps) has dropped by 27% from the previous week.

Ethereum network’s most active DApps in USD terms. Source: DappRadar

The network’s most active decentralized applications saw a substantial reduction in users. For instance, Uniswap (UNI) V3 weekly addresses decreased by 24%, while Curve (CRV) faced 52% fewer users.

To understand how professional traders, whales and market makers are positioned, let’s look at Ether’s futures market data.

Quarterly futures are used by whales and arbitrage desks due, primarily, to their lack of a fluctuating funding rate. These fixed-month contracts usually trade at a slight premium to spot markets, indicating that sellers request more money to withhold settlement longer.

These futures should trade at a 5% to 12% annualized premium in healthy markets. This situation is technically defined as “contango” and is not exclusive to crypto markets.

Ether futures 3-month annualized premium. Source: Laevitas

Related: Bitcoin price returns to weekly lows under $29K as Nasdaq leads fresh U.S. stocks dive

Ether’s futures contracts premium went below the 5% neutral-market threshold on April 6. There’s an evident lack of conviction from leverage buyers because the current 3% basis indicator remains depressed.

Ether might have gained 2% after testing the $1,910 channel resistance on May 24, but on-chain data shows a lack of user growth, while derivatives data point toward bearish sentiment.

Until there’s some morale improvement that boosts the use of decentralized applications and the Ether futures premium regains the 5% neutral level, the odds of the price breaking above the $2,150 resistance seems low.

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

Lost SOL? Persistent challenges continue to impact Solana price

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

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

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

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

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

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

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

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

TVL and the number of active addresses dropped

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

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

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

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

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

Solana futures aggregate open interest. Source: Coinglass

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

SOL is likely to experience more pain

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

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

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

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

2 key Ethereum price metrics suggest traders will struggle to hold the $2K support level

ETH bulls are aiming to flip $2,000 back to support, but these two metrics point toward further downside.

Ether (ETH) price has been trying to establish an ascending channel since the May 12 market-wide crash that sent its price to $1,790. Currently, the altcoin’s support stands at $2,000, but the high correlation to traditional markets is causing traders to be highly skeptical s cryptocurrency market recovery. 

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

To date, the Federal Reserve continues to dictate the markets’ performance and uncertainty has been the prevailing sentiment because the central banks of major economies are trying to tame inflation. Considering that the correlation between crypto markets and the S&P 500 index has been above 0.85 since March 29, traders are likely less inclined to bet on Ether decoupling from wider markets anytime soon.

Currently, the correlation metric ranges from a -1, meaning select markets move in opposite directions to a +1, a perfect and symmetrical movement. Meanwhile, 0 would show disparity or a lack of relationship between the two assets.

U.S. Federal Reserve Chairman Jerome Powell emphasized on May 17 his resolve to get inflation down by raising interest rates until prices start falling back toward a “healthy level.” Still, Powell cautioned that the Fed’s tightening movement could impact the unemployment rate.

So from one side, the traditional markets were pleased to be reassured that the monetary authority plans a “soft landing,” but that doesn’t reduce the unintended consequences of achieving “price stability.”

Regulatory uncertainty also had a negative impact

Further pressuring Ether’s price was a document published on May 16 by the U.S. Congressional Research Service (CRS) that analyzes the recent TerraUSD (UST) debacle. The legislative agency that supports the United States Congress noted that the stablecoin industry is not “adequately regulated.”

In the same time, the Ethereum network’s total value locked (TVL) has dropped by 12% from the previous week.

Ethereum network total value locked, ETH. Source: Defi Llama

The network’s TVL dropped from 28.7 billion Ether to the current 25.3 million. The doomsday scenario brought on by Terra’s (LUNA) collapse negatively impacted the decentralized finance industry, an event which was felt across the board on the smart contract blockchains. All things considered, investors should focus on the Ethereum network’s resilience during this unprecedented event.

To understand how professional traders are positioned, including whales and market makers, let’s look at Ether’s futures market data.

Ether futures shows signs of distress

Quarterly futures are whales and arbitrage desks’ preferred instruments due to their lack of a fluctuating funding rate. These fixed-month contracts usually trade at a slight premium to spot markets, indicating that sellers request more money to withhold settlement longer.

Those futures should trade at a 5% to 12% annualized premium in healthy markets. This situation is technically defined as “contango” and is not exclusive to crypto markets.

Ether futures 3-month annualized premium. Source: Laevitas

As displayed above, Ether’s futures contracts premium went below 5% on April 6, below the neutral-market threshold. Furthermore, the lack of leverage demand from buyers is evident because the current 3.5% basis indicator remains depressed despite Ether’s discounted price.

Ether’s crash to $1,700 on May 12 drained any leftover bullish sentiment and more importantly, the Ethereum network’s TVL. Even though Ether price displays an ascending channel formation, bulls are nowhere near the confidence levels required to place leveraged bets.

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

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

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

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

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

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

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

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

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

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

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

The Bitcoin futures premium is showing resilience

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

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

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

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

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

Options traders are beyond stressed

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

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

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

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

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

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

The Brazilian Stock Exchange will launch Bitcoin and Ethereum futures

Chief financial officer André Milanez said that the product will launch within the next si months.

B3, the Brazilian Stock Exchange, confirmed that within six months it intends to launch its first official product aimed at the cryptocurrency market — Bitcoin (BTC) futures trading. The group’s chief financial officer, André Milanez, made the announcement during a conference call on Monday.

Milanez did not provide many details on how the product will work. It is not yet known if B3 will form a partnership or if it will offer Bitcoin futures trading directly, but the timeline for launching this product was stated to be relatively short. “We plan to launch bitcoin futures in the next three to six months,” he said.

Currently, in Brazil, institutional and retail investors can trade 11 ETFs through B3 with exposure to cryptocurrencies, including CRPT11 from Empiricus with Vitreo; the NFTS11 of Investo; QBTC11, QETH11 and QDFI11 all from QR Assets and META11, HASH11, BITH11, ETHE11, DEFI11, WEB311 all from Hashdex. In addition, in Brazil, there are more than 25 investment funds approved by the Securities and Exchange Commission (CVM) that offer different types of exposure to the crypto-assets market.

In January Jochen Mielke de Lima, director of information technology at B3, had already said that the Brazilian stock exchange would launch several products with exposure to cryptocurrencies in 2022, including Bitcoin futures and Ethereum (ETH) futures

At the time, the executive highlighted that the Brazilian stock exchange had been looking closely at the cryptocurrency market from a technological point of view since 2016.

According to the statement, B3 only needed to settle the question on whether the negotiations would be carried out against the U.S. dollar or against the Brazilian real. Futures contracts need a reference index, so if the team chooses Brazil’s native currency, it will be necessary to compose a crypto-assets index in reais — something that does not exist now.

The B3 rep also said it is exploring ways to provide data inputs for the country’s central bank digital currency, or CBDC.

B3 and Cryptocurrencies

In addition to BTC and ETH futures, B3 also intends to offer services to national cryptocurrency exchanges and to be a kind of “centralizer” of custody and settlement operations, according to Jochen Mielke de Lima:

“We have around 30 national crypto exchanges, apart from the international ones that operate here. We could offer a service to facilitate and standardize their operations. I believe it has something to explore in providing custody services and in the settlement process.”

Mielke, also stated that the cryptocurrency market is very similar to the regulated stock market, as it involves issuing, trading, settlement and custody. He stated therefore that B3 could help solve common problems between exchanges.

“We are identifying points of friction that we can help resolve to face up, such as helping our customers provide the best access to their end customers,” he said.

In addition, B3 plans other products based on cryptocurrencies and blockchain to launch in 2022. Among them, there are studies on a platform for asset tokenization, cryptocurrency trading, cryptocurrency custody, among others.

“Trading and access to liquidity centers: this means mitigating the complexities of accessing a fragmented, global and 24×7 market; Digital Asset Custody: providing reliable custody (hence, purpose of blockchain transactions); Over-the-counter facilitation: thIn this way, it wants to provide more security and efficiency in the movement and DVP of digital assets; Capital efficiency gains: thus, it wants to mitigate the pre-funded nature of operations and Crypto as a service: make it easier for clients to explore the crypto market with low friction,” highlighted B3.

For 2022, B3 reps said they foresee the official launch of a reinsurance platform. This will work on the Corda blockchain R3, and is a partnership between the exchange and IRB Brazil.

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

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

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

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

Total crypto market capitalization, USD billion. Source: TradingView

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

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

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

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

The total crypto capitalization down 19.8% in seven days

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

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

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

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

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

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

Tether premium shows trickling demand from retail traders

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

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

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

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

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

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

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

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

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

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

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

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

Bitcoin fights to hold $29K as fear of regulation and Terra’s UST implosion hit crypto hard

Bitcoin leverage traders show little interest in going long even as BTC price flirts with new lows below $29,000.

Bitcoin (BTC) price initially bounced from its recent low at $29,000 but the overall market sentiment after a 25% price drop in five days is still largely negative. Currently, the crypto “Fear and Greed Index,” which uses volatility, volume, social metrics, Bitcoin dominance and Google trends data, has plunged to its lowest level since March 2020 and at the moment, there appears to be little protecting the market against further downside.

Crypto “Fear and Greed index”. Source: Alternative.me

Regulation continues to weigh down the markets

Regulation is still the main threat weighing on markets and it’s clear that investors are taking a risk-off approach to high volatility assets. Earlier this week, during a hearing of the Senate Banking Committee, United States Secretary of the Treasury Janet Yellen called for a regulatory framework on stablecoins and specifically addressed the TerraUSD (UST) stablecoin plunging below $0.70.

Furthermore, the United Kingdom introduced two bills aimed at addressin crypto regulation on May 10. The Financial Services and Markets Bill and the Economic Crime and Corporate Transparency Bill aim to strengthen the country’s financial services industry, including supporting “the safe adoption of cryptocurrencies.”

Meanwhile, searches for “Bitcoin” and “crypto” on Google are nearing their lowest levels in 17 months.

Global search for “Bitcoin” and “Cryptos”. Source: Google Trends

This indicator could partially explain why Bitcoin is 56% below its $69,000 all-time high because the public interest is low but let’s take a look at how professional traders are positioned in derivatives markets.

Long-to-short data confirms a lack of buyers’ demand

The top traders’ long-to-short net ratio analyzes the positions on the spot, perpetual and futures contracts. From an analysis point of view, it gives a better understanding on whether professional traders are bullish or bearish.

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

Exchange top traders Bitcoin long-to-short ratio. Source: Coinglass

According to the long-to-short indicator, Bitcoin might have jumped 4% since the $29,000 low on May 11, but professional traders did not increase their bullish bets. For instance, OKX’s top traders’ ratio decreased from 1.20 to the current 1.00 level.

Moreover, Binance data shows those traders stable near 1.10, and a similar trend happened at Huobi as the top traders’ long-to-short ratio stood at 0.97. Data shows no demand for leverage buys among professional investors despite the 5% price recovery.

CME futures traders are no longer bearish

To further prove that the crypto market structure has deteriorated, traders should analyze the CME’s Bitcoin futures contracts premium. The metric compares longer-term futures contracts and the traditional spot market price.

These fixed-calendar contracts usually trade at a slight premium, indicating that sellers request more money to withhold settlement for longer. As a result, the one-month futures should trade at a 0.5% to 1% premium in healthy markets, a situation known as contango.

Whenever that indicator fades or turns negative (backwardation), it is an alarming red flag because it indicates that bearish sentiment is present.

BTC CME 1-month forward contract vs. BTC/USD at FTX. Source: TradingView

The chart above shows how the indicator entered backwardation on May 10 and the move marks the lowest reading in two months at a negative 0.4% premium.

Data shows that institutional traders are below the “neutral” threshold measured by the futures’ basis and this points to the formation of a bearish market structure.

Furthermore, the top traders’ long-to-short data shows a lack of appetite despite the quick 4% price recovery from the $29,000 level and the fact that BTC price now trades near the same level is also concerning. Unless the derivatives metrics show some improvement, the odds of further price correction remain high.

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.

Pro traders adopt a hands-off approach as Bitcoin price explores new lows

Charts suggest BTC price will dip below $30,000, and derivatives data shows options traders becoming increasingly worried.

Bitcoin’s (BTC) current 20% drop over the past four days has put the price at its lowest level in nine months and while these movements might seem extraordinary, quite a number of large listed companies and commodities faced a similar correction. For example, natural gas futures corrected 15.5% in four days and nickel futures traded down 8% on May 9.

Other casualties of the correction include multiple $10 billion and higher market capitalization companies that are listed at U.S. stock exchanges. Bill.com (BILL) traded down 30%, while Cloudflare (NET) presented a 25.4% price correction. Dish Network (DISH) also faced a 25.1% drop and Ubiquiti’s (UI) price declined by 20.4%.

Persistent weak economic data indicates that a recession is coming our way. At the same time, the U.S. Federal Reserve reverted its expansionary incentives and now aims to reduce its balance sheet by $1 trillion. On May 5, Germany also reported factory orders declining by 4.7% versus the previous month. The U.S. unit labor costs presented an 11.6% increase on the same day.

This bearish macroeconomic scenario can partially explain why Bitcoin and risk assets continue to correct but taking a closer look at how professional traders are positioned can also provide useful insight.

Bitcoin’s futures premium stabilized at 2.5%

To understand whether the recent price action reflects top traders’ sentiment, one should analyze Bitcoin’s futures contracts premium, otherwise known as the “basis rate.”

Unlike a perpetual contract, these fixed-calendar futures do not have a funding rate, so their price will differ vastly from regular spot exchanges. The three-month futures contract trades at a 5% or lower annualized premium whenever these pro traders flip bearish.

On the other hand, a neutral market should present a 5% to 12% basis rate, reflecting market participants’ unwillingness to lock in Bitcoin for cheap until the trade settles.

Bitcoin 3-month futures premium. Source: laevitas.ch

The above data shows that Bitcoin’s futures premium has been lower than 5% since April 6, indicating that futures market participants are reluctant to open leverage long positions.

Even with the above data, the recent 20% price correction was not enough to drive this metric below the 2% threshold, which should be interpreted as positive. Bulls certainly do not have a reason to celebrate, but there are no signs of panic selling from the viewpoint of futures markets.

Options traders stepped deeper into the “fear” zone

To exclude externalities specific to the futures contracts, traders should also analyze the options markets. The most simple and effective metric is the 25% delta skew, which compares equivalent call (buy) and put (sell) options.

In short, the indicator will turn positive when “fear” is prevalent because the protective put options premium is higher than the call (bullish) options. On the other hand, a negative 25% skew indicates bullish markets. Lastly, readings between negative 8% and positive 8% are usually deemed neutral.

Deribit Bitcoin 30-day options 25% delta skew. Source: laevitas.ch

The above chart shows that Bitcoin option traders have been signaling “fear” since April 8 after BTC broke below $42,500. Unlike futures markets, options primary sentiment metric showed a worsening condition over the past four days as the 25% delta skew currently stands at 14.5%.

To put things in perspective, the last time this options market’s “fear & greed” indicator touched 15% was on January 28, after Bitcoin price traded down 23.5% in four days.

The bullish sentiment of margin markets peaked

Traders should also analyze margin markets. Borrowing crypto allows investors to leverage their trading position and potentially increase their returns. For example, a trader can borrow Tether (USDT) and use the proceeds to boost their Bitcoin exposure.

On the other hand, borrowing Bitcoin allows one to bet on its price decline. However, the balance between margin longs and shorts is not always matched.

OKEx USDT/BTC margin lending ratio. Source: OKEx

Data shows that traders have been borrowing more Bitcoin recently, as the ratio declined from 24.5 on May 6 to the current 16.8. The higher the indicator, the more confident professional traders are with Bitcoin’s price.

Despite some recent Bitcoin borrowing activity aimed at betting on the price downturn, margin traders remain mostly optimistic, according to the USDT/BTC lending ratio. Typically, numbers above five reflect bullishness and the recent 24.5 peak was the highest level in more than six months.

According to derivatives metrics, Bitcoin traders are afraid of a deepening correction as macroeconomic indicators deteriorate. However, investors also expect a potential crisis in traditional markets, so Bitcoin’s 20% correction merely follows that of broader risk assets.

On a positive note, there are no signs of leverage short (negative) bets using margin or futures, meaning there is little conviction from sellers at current price levels.

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.