Futures

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.

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

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 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.

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 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.

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

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 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.

Ethereum rallies to $1,350, but derivatives metrics remain neutral to bearish

Pro traders aren’t buying ETH’s recent rally and data shows they expect Ether price to retrace if Fed chair Powell takes a hawkish tone on Wednesday.

Ether (ETH) rallied 6.3% to $1,350 on Dec. 13, mimicking a similar failed attempt that took place on Nov. 10. Despite reaching the highest level in 33 days, the gains were not enough to instill confidence in traders according to two key derivatives metrics.

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

Bulls’ frustrations can partially be explained by Binance facing a near-record $1.1 billion in withdrawals over a 24-hour period. The unusual behavior comes as the exchange attempts to put out multiple disputes about its proof of reserves and overall solvency on crypto Twitter. According to Binance CEO Changpeng Zhao, the social media posts amount to nothing more than FUD.

However, Binance’s USD Coin (USDC) reserves were emptied after alleged troubles with commercial banking hours.

The negative newsflow continued on Dec. 13, as the United States Securities and Exchange Commission (SEC) filed charges against Sam Bankman-Fried, the former CEO of now-bankrupt FTX crypto exchange. The fresh charges come just a day after his arrest by Bahamian authorities at the request of the U.S. government.

On Dec. 13, the United States Commodity Futures Trading Commission (CFTC) also filed a lawsuit against Bankman-Fried, FTX and Alameda Research, claiming violations of the Commodity Exchange Act. It demanded a jury trial.

Traders are relieved that Ether is trading above the $1,300 level, but the rebound has been mostly driven by the Consumer Price Index print for November at 7.1% year-on-year, which was a tad bit softer than expected. More importantly, the U.S. Federal Reserve is scheduled to decide on the latest interest rate hike on Dec. 14, with analysts expecting the pace of rate hikes to decline now that inflation appears to have peaked.

Consequently, investors believe that Ether could retrace its recent gains if comments Federal Reserve Chair Jerome Powell take a hawkish angle, a point highlighted by trader CryptoAceBTC:

Let’s look at Ether derivatives data to understand if the surprise pump positively impacted investors’ sentiment.

The rally to $1,300 had a limited impact on confidence

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

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 remain in “fear mode” because the Ether futures premium is below 0%, indicating the absence of leverage buyers’ demand. Still, such data does not signal 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 negative price movements.

Options traders were on the verge of turning neutral

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.

Related: Binance net withdrawals topped $3.6B over the last 7 days — Report

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

The delta skew improved considerably between Dec. 7 and Dec. 11, declining from a fearful 16% to a neutral balanced-risk options pricing at 9.5%. The movement signaled that options traders were more comfortable with downside risks. However, the situation changed on Dec. 13 after Ether failed to break the $1,350 resistance.

As the 60-day delta skew stands at 14%, whales and market makers are reluctant to offer downside protection, which seems odd considering that ETH is trading at its highest level in 32 days. Both options and futures markets point to pro traders fearing that the $1,300 resistance will not hold ahead of the Fed meeting.

Currently, the odds favor Ether bears because the FTX exchange bankruptcy increased the possibility of stricter regulation and brought discomfort to cryptocurrency investors.

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 traders cross fingers in hopes that a positive Fed meeting triggers a run to $18K

All eyes are on this week’s Federal Reserve meeting, and BTC traders hope that positive strides against inflation trigger a run to $18,000.

Bitcoin (BTC) failed to break above the $17,250 resistance on Dec. 11 and subsequently faced a 2.2% correction. More importantly, the last daily close above this level was over 30 days ago — reinforcing the thesis of size sellers near the $330 billion market capitalization mark.

Curiously, this valuation level is slightly behind Palladium, the world’s 23rd most valuable traded asset with a $342 billion capitalization. So from one side, Bitcoin bulls have some reasons to celebrate because the price recovered 10% from the $15,500 low on Nov. 21, but bears still have the upper hand on a larger time frame since BTC is down 64% year-to-date.

Two events are expected to determine traditional finance investors’ fate, as the United States consumer price index is expected onDec. 13 and U.S. Federal Reserve chair Jerome Powell will announce the size of the next interest rate hike on Dec. 14. Powell’s press conference will also be anxiously awaited by investors.

In the cryptocurrency markets, there is mild relief stemming from exchanges’ proof of reserves, although several analysts have criticized the limited details of each report.

Derivatives exchange Bybit was the latest addition to the transparency initiative, allowing users to self-verify their deposits using Merkle Trees, according to a Dec. 12 announcement.

However, regulatory risks remain high after U.S. Democrat Senator and crypto-skeptic Jon Tester boldly stated that he sees “no reason why” crypto should exist. During a Dec. 11 appearance on NBC, Tester argued that crypto has no real value, so regulating the sector would give it legitimacy.

Lastly, according to Reuters, the U.S. Department of Justice (DOJ) is nearing the completion of its investigation into Binanceexchange, which started in 2018. The Dec. 12 report suggests a conflict among prosecutors on whether the evidence is enough to pursue criminal charges.

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

The Asia-based stablecoin premium drops to 2-month low

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 99%, down from 102.5% on Dec. 3, indicating lesser demand for stablecoin buying from Asian investors. The data gains relevance after the multiple failed attempts to break above the $17,250 resistance.

However, this data should not necessarily be bearish because the stablecoin position could have been converted for fiat (cashed out) solely due to counterparty risks — meaning investors withdrew from exchanges.

Leverage buyers ignored the failed resistance break

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 failed to break the $17,250 resistance, professional traders have kept their leverage long positions unchanged according to the long-to-short indicator.

For instance, the ratio for Binance traders slightly declined from 1.08 on Dec. 5 to the current 1.05 level. Meanwhile, Huobi displayed a modest decrease in its long-to-short ratio, with the indicator moving from 1.04 to 1.02 in the seven days until Dec. 12.

Yet, at OKX exchange, the metric increased from 1.04 on Dec. 5 to the current 1.07 ratio. So, on average, traders have kept their leverage ratio during the week which is encouraging data considering the lackluster price action.

Bitcoin’s $17,250 resistance is losing strength

There’s an old saying: “if a support or resistance keeps getting tested, it is likely to become weaker.” Currently, the stablecoin premium and top traders’ long-to-short — suggest that leverage buyers are not backing despite the multiple failures to break above $17,250 in December.

Related: NYC Mayor stands by Bitcoin pledge amid bear market, FTX — Report

Even though the Asian stablecoin premium is no longer present, the 1% discount is not enough to signal discomfort or distressed sellers. Furthermore, the top traders’ long-to-short ratio stood flat versus the previous week.

The data from those two markets supports the thesis of Bitcoin breaking above $17,250 as long as the U.S. FED meeting on Dec. 14 signals that the interest rate hikes are nearing an end. If this were the case, investors’ bearish sentiment could be extinguished because bears will become less confident, especially if Bitcoin price holds the $17,000 level.

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.

Total crypto market cap falls to $840B, but derivatives data shows traders are neutral

Regulatory pressure continues to limit each upside breakout, but data shows some compelling reasons for an eventual crypto market rally.

The total cryptocurrency market capitalization has dropped 1.5% in the past seven days to rest at $840 billion. The slightly negative movement did not break the ascending channel initiated on Nov. 12, although the overall sentiment remains bearish and year-to-date losses amount to 64%.

Total crypto market cap in USD, 12-hour. Source: TradingView

Bitcoin (BTC) price dropped 0.8% on the week, stabilizing near the $16,800 level at 10:00 UTC on Dec. 8 — even though it eventually broke above $17,200 later on the day. Discussions related to regulating crypto markets pressured markets and the FTX exchange collapse limited traders’ appetites, causing lawmakers to turn their attention to the potential impact on financial institutions and the retail investors’ lack of protection.

On Dec. 6, the Financial Crimes Enforcement Network (FinCEN) said it is “looking carefully” at decentralized finance (DeFi), with the agency’s acting director, Himamauli Das, saying that digital asset ecosystem and digital currencies are a “key priority area.” In particular, the regulator was concerned with DeFi’s “potential to reduce or eliminate the role of financial intermediaries” that are critical to its efforts against money laundering and terrorist financing.

Hong Kong’s legislative council approved a new licensing regime for virtual asset service providers. From June 2023, cryptocurrency exchanges will be subject to the same legislation followed by traditional financial institutions. The change will require stricter Anti-Money Laundering and investor protection measures before being guaranteed a license to operate.

Meanwhile, Australian financial regulators are actively working on methods for incorporating payment stablecoins into the regulatory framework for the financial sector. On Dec. 8, the Reserve Bank of Australia published a report on stablecoins that cited risks of disruptions to funding markets, such as bank exposure and liquidity. The analysis highlighted the particular fragility of algorithmic stablecoins, noting the Terra-Luna ecosystem collapse.

The 1.5% weekly drop in total market capitalization was impacted mainly by Ether’s (ETH) 3% negative price move and BNB (BNB), which traded down 2.5%. Still, the bearish sentiment significantly impacted altcoins, with 10 of the top 80 coins dropping 8% or more in the period.

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

Trust Wallet (TWT) gained 18.6% as the service provider gained market share from the browser extension wallet launch in mid-November.

Axie Infinity Shards (AXS) rallied 17.6% as investors adjusted their expectations after a drastic 89% correction since the 1Q of 2022.

Chainlink (LINK) saw a 10.1% correction after its staking program opened up for early access on Dec. 6, indicating investors had anticipated the event.

1INCH dropped 15.2% after 15% of the supply was unlocked on Dec. 1 under its original four-year vesting schedule.

Leverage demand is balanced between bulls and bears

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

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

Perpetual futures accumulated 7-day funding rate on Dec. 8. Source: Coinglass

The seven-day funding rate was near zero for Bitcoin and altcoins, meaning the data points to a balanced demand between leveraged longs (buyers) and shorts (sellers) in the period.

Traders should also analyze the options markets to understand whether whales and arbitrage desks have placed higher bets on bullish or bearish strategies.

The options put/call ratio reflects moderate bullishness

Traders can gauge the market’s overall sentiment by measuring whether more activity is going through call (buy) options or put (sell) options. Generally speaking, call options are used for bullish strategies, whereas put options are for bearish ones.

A 0.70 put-to-call ratio indicates that put options open interest lag the more bullish calls by 30% and is therefore bullish. In contrast, a 1.40 indicator favors put options by 40%, which can be deemed bearish.

BTC options volume put-to-call ratio. Source: Laevitas

Even though Bitcoin’s price failed to break the $17,500 resistance on Dec. 5, there was only temporary excessive demand for downside protection using options.

Presently, the put-to-call volume ratio stands near 0.40 as the options market is more strongly populated by neutral-to-bearish strategies, favoring call (buy) options by 60%.

Related: US lawmakers question federal regulators on banks’ ties to crypto firms

Derivatives markets point to upside potential

Despite the weekly price decline in a handful of altcoins and the 2% drop in total market capitalization, there have been no signs of sentiment worsening, according to derivatives metrics.

There’s balanced demand for leverage using futures contracts, and the BTC options risk assessment metric remains favorable even after Bitcoin’s price failed to break above the $17,500 level.

Consequently, the odds favor those betting that the ascending channel will prevail, propelling the total market capitalization to the $875 billion resistance. A break above the channel would give bulls much-needed breathing room after a week of negative newsflow.

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.

3 reasons why Ethereum price keeps rejecting at the $1,300 level

Traders are not sure if ETH will be able to hold the $1,200 level while the S&P 500 rapidly approaches the crucial 3,900 support and ETH derivatives data hints at more downside.

Ether (ETH) rallied 11.3% between Nov. 28 and Dec. 5, peaking at $1,300 before facing a 4.6% rejection. The $1,300 resistance level has been holding ground for twenty-six days and is the most likely explanation for the correction to $1,240 on Dec. 6. 

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

So from one side, traders are relieved that Ether is trading 16% above the $1,070 low reached on Nov. 22, but it must be frustrating to fail at the same level the entire week. In addition to the price rejection, investors’ mood worsened after three members of the United States Senate reportedly requested information from Silvergate Bank regarding its relationship with FTX.

The lawmakers raised questions after “reports suggesting that Silvergate facilitated the transfer of FTX customer funds to Alameda” and gave the bank until Dec. 19 to issue a response.

On Dec. 5, NBC News reported that Silvergate claimed to be a “victim” of FTX’s and Alameda Research’s “apparent misuse of customer assets and other lapses of judgment.”

Newsflow remained negative after the Financial Times reported that the United Kingdom Treasury is finalizing some guidelines to restrict cryptocurrency sales from abroad. The changes would enable the Financial Conduct Authority (FCA) to monitor the crypto companies’ operations in the region. The guidelines are being prepared as a part of the financial services and markets bill.

Investors are afraid that Ether could lose the $1,200 support, but as highlighted by trader CashMontee, the S&P 500 stock market index will be the key — but for now, the “market too bullish.”

Let’s look at Ether derivatives data to understand if the bearish newsflow has impacted crypto investors’ sentiment.

Slight uptick in bearish demand for ETH futures’ leverage

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

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

The above chart shows that derivatives traders remain bearish as the Ether futures premium is negative. So, bears can celebrate that the indicator is far from the neutral 0% to 4% premium, but that does not mean traders expect an immediate adverse price action.

For this reason, traders should analyze Ether’s options markets to exclude externalities specific to the futures instrument.

Options traders are getting comfortable with the downside risks

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 has stabilized in the past week, signaling that options traders are more comfortable with downside risks.

Related: Ethereum ‘March 2020’ fractal hints at price bottom — But ETH bears predict 50% crash

As the 60-day delta skew stands at 12%, whales and market makers are getting closer to a neutral sentiment for Ether. Ultimately, both options and futures markets point to pro traders fearing that the $1,200 support retest is the natural course for ETH.

The answer might as well be hidden under the macroeconomic calendar ahead, which includes the EuroZone’s and Canada’s Gross Domestic Product (GDP) on Dec. 7 and the United States Consumer Price Index (CPI) on Dec. 13.

Currently, the odds favor Ether bears because the newsflow implies that the possibility of stricter regulation is weighing down the market.

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.

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

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.

Related: USDC issuer Circle terminates SPAC merger with Concord

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.

Margin trading vs. Futures: What are the differences?

Margin trading and futures are used in cryptocurrency to multiply gains. Here’s what you need to know about these tools, how they work, and their differences.

Are margin and futures trading risky tools?

While investors find margin trading and futures very attractive because of their potential returns, they should be cautious and consider all the risks before adopting them.

Risks associated with margin trading

Crypto margin trading is riskier than standard trading because of the leverage component, which may lose the investor more money than they held initially. Especially considering that cryptocurrencies are very volatile and unpredictable assets, the investor may have to provide extra funds to the collateral to avoid being forced to sell. 

Investors start paying interest on the loan they took up to margin trade from day one, and the debt increases as the interest accrues. For this reason, margin trading is suited for short-term investments, as with interest to pay over the long period, the odds of making a profit are slimmer.

Risks associated with futures trading

The main risk associated with futures trading is the elevated leverage that investors can request with their already speculative positions. Typically, futures are allowed far greater leverage than their underlying assets, meaning they also face an increased risk of a margin call that could stretch the losses.

Coupled with the extreme volatility of the cryptocurrency market, the price of a futures contract may not favor the investor at the expiry date. Above all, beginners with little knowledge of markets and strategies should acquire some trading skills before venturing into either margin or futures trading, as they are speculative and risky investment tools.

Are margin trading and futures similar investments?

Margin trading occurs in the spot market — a marketplace for immediate delivery — while futures relates to trades occurring in the derivatives market on assets to be delivered in the future.

Margin trading and futures trading are two strategies that require the investor to have good trading skills as they are considered advanced trading techniques. They are two different types of investment tools with a similar goal, but they just go about different ways to achieve it.

Margin trading vs. futures: Similarities

Opportunity

Margin trading and futures are similar investment tools. They aim to allow investors to buy more of a crypto asset using only their equity. They are both speculative instruments and have different approaches to achieving the same goal.

Purpose

They can both trigger amplified returns but can cause extreme losses too. Especially in the highly volatile cryptocurrency market, it’s somehow easy to experience significant quick gains. Still, dramatic losses can occur too, so it is recommended that only experienced traders use these tools.

Margin trading vs. futures: Differences

Different markets 

The main difference between margin trading and futures is in the market they are traded. Margins are traded on the spot market, while futures are contracts exchanged in the derivatives market and imply the future delivery of the asset.

Leverage 

Margin trading in crypto usually has a leverage that ranges between 5 and 20%, while it’s common to exceed 100% in futures.

Collateral allocation 

Crypto margin accounts allow traders to leverage the spot market through a sort of loan on which interest must be paid, while futures only require a good faith deposit as collateral.

Duration

Being perpetual, the spot market requires traders to determine how long they want to keep a coin leveraged. On the other hand, futures are contracts with an expiry date that determine how long you can hold a position. 

Types of investors

They target two types of traders for executing margin trading and futures. Margin trading is more for short-term investors, while futures refers more to long-term investors.

How does a futures trade work?

Futures trading in the cryptocurrency market allows investors to bet on the price of Bitcoin. For example, at a specific date in the future, all without actually owning any of it.

In crypto futures trading, a contract is ratified between a seller who wants to lock in a price hoping for a profit at a specific date in the future and a buyer who will purchase the agreement as a hedge against paying higher prices if the asset grows in value. 

The process happens regardless of the actual price of the asset at that future date and is regulated by futures exchanges that must guarantee the fulfillment of the contract at its expiration date. With crypto trading, futures are often quarterly or perpetual contracts.

Futures contracts must include the following:

  • An expiration date: when the futures contract is settled at the predetermined conditions;
  • The contract value: the amount of cryptocurrency which forms the underlying asset covered in the contract;
  • Leverage: Some exchanges allow traders to borrow funds to increase their position size and boost potential gains;
  • Settlement type: it can usually be in cryptocurrency, cash in hand or through a bank transfer.

What is futures trading?

Futures are a type of derivative contract that ties a buyer and a seller of a cryptocurrency to execute the deal at the established price at a specific date in the future.

Some crypto enthusiasts prefer to invest through futures trading instead of dealing with actually buying or selling it through private keys, passwords and generally avoid going through the hassle that most platforms require to trade crypto. At the same time, they have acquired exposure to the asset. 

Crypto futures trading terms are indicated in a futures contract, which ties a buyer to receive a crypto asset at their predicted price on a specific date and the seller to deliver that asset at those same conditions when the futures contract expires, regardless of the market price at the expiration date.

Futures contracts are traded on futures exchanges like the CME Group, the largest and most recognized globally, and are identified by their expiration month. According to the Futures Industry Association (FIA), 29 billion futures contracts were traded in 2021. Futures trading cryptocurrency is a growing portion of the market, with more people interested in this type of investment. 

CME reported an increase of 13% in Bitcoin (BTC) added daily value (ADV) of contracts and Micro Bitcoin futures traded in 2021. The benefits of futures trading mainly allow investors to hedge a crypto asset’s price movement to help avoid losses from negative price changes. 

In hedging, investors take a position opposite to the one they hold with the underlying asset so that if they lose money on the latter, they will mitigate the loss through the futures contracts balancing their risk exposures and limiting themselves from any fluctuations in price. 

You can lose money in futures trading. However, because of the hedging element, losses are mitigated and can be less dramatic than with margin trading. Like margin accounts, trading crypto with futures requires opening a brokerage account which must be approved by the exchange or the broker.

How does margin trading work?

Margin trading aims to amplify gains and allows experienced investors to potentially get them quickly. They may bring dramatic losses, too, if the trader doesn’t know how they work.

When trading on margin, crypto investors borrow money from a brokerage firm to trade. They first deposit cash into a margin account that will be used as collateral for the loan, a kind of security deposit. 

Then they start paying interest on the borrowed money, which can be paid at the end of the loan or with monthly or weekly installments, based on current market conditions. When the asset is sold, proceeds are used to repay the margin loan first. 

The loan is necessary to raise investors’ purchasing power and buy larger amounts of crypto assets, and the assets purchased automatically become the collateral for the margin loan.

The amount an investor is allowed to borrow depends on the price of the asset purchased and the collateral’s value. Still, typically a broker will offer an investor to borrow up to 50% of the purchase price of a cryptocurrency against the amount of collateral in the account. 

So, for instance, if an investor wants to buy $1,000 worth of cryptocurrency and put half of that on margin, they’ll need at least $500 worth of collateral to repay the initial loan. 

Margin trading leverage 

A margin account is typically used for leveraged trading, with the leverage representing the ratio of borrowed funds to the margin. A margin trading example could be to open a $10,000 trade at a leverage of 10:1. In that case, a trader must commit $1,000 of their capital to execute the trade.

These leverage ratios vary depending on the trading platform and the market traded. The stock market, for example, has a typical ratio of 2:1. In contrast, with futures contracts, the ratio rises to 15:1. In crypto margin trading, where rules are not always established like in traditional markets, the leverage ratio could vary from 2:1 to as much as 125:1. The crypto community usually simplifies referring to the ratio as 2x, 5x, 125x, and so forth, which indicates the multiplied amount their investment could accrue to.

Margin trading includes references such as going long or short on trades investors take. When people go long, they refer to an extended position they’ve taken, predicting that the price will go up in value. A short position is based on the assumption that the opposite will happen, and investors have a negative position on the crypto, believing it will drop in price. In that case, the investor will profit if the asset falls.

The benefit of margin trading is to amplify gains, but investors can also lose money. The trader’s assets are the collateral for the loan, and in case their value drops below a fixed threshold, the broker reserves the right to force a sale unless the investor injects more funds as collateral to achieve the minimum requirements for margin trading.

What is margin trading?

Margin trading is a strategy that allows investors to buy more assets without using their own funds and borrowing funds from a broker instead. 

Margin trading in cryptocurrency markets is no different from traditional margin trading. Margin funding is considered a loan to trade a digital asset, where the margin is the money borrowed from a broker and the difference between the total value of the investment and the loan amount. 

The assets that form the balance of a margin trading account are used as collateral for the loan to cover the credit risk and potential losses traders may have, especially when trading on leverage. The brokerage firm or a crypto exchange may liquidate a trader’s assets if the value of the investment drops considerably.

In order to trade crypto with margin, an investor needs to be authorized by the service provider to open a margin account where to deposit crypto, cash, or securities as collateral for the loan. In margin trading cryptocurrency, the leverage will amplify both gains and losses, and a margin call may occur with heavy losses, such as a decrease in the securities’ equity value. 

A margin call allows the exchange or a broker to liquidate the investor’s collateral without consent or to request more funds into their margin account to avoid a forced liquidation to satisfy the broker.

Don’t’ believe the hype — Bitcoin price rally to $17K reflects improving sentiment

Negative newsflow continues to make headlines but BTC’s recent move above $17,000 suggests investors are finding reasons to be bullish.

Bitcoin (BTC) price gained 6.1% between Nov. 28 and Nov. 30 after briefly testing the $17,000 support. Favorable regulatory winds might have helped fuel the rally after the Binance exchange announced the acquisition of a regulated crypto exchange in Japan on Nov. 30.

Bitcoin 12-hour price index, USD. Source: TradingView

Binance shut its operations in Japan in 2018 after being warned by the Japan Financial Services Agency for operating without a license. The acquisition of Sakura Exchange BitCoin would mark the re-entry of Binance in the Japanese market.

Furthermore, Gemini exchange announced new regulatory approvals in Italy and Greece on Nov. 30. The exchange was granted registration as a virtual currency operator with Italy’s payments services regulator. Gemini was approved as an exchange and custodial wallet provider in Greece.

However, not everything has been positive on the regulatory front. In separate letters from Nov. 28, Ron Wyden, chair of the United States Senate Finance Committee, requested information from six cryptocurrency exchanges. The lawmaker targeted the necessity of “consumer protections along the lines of the assurances that have long existed for customers of banks, credit unions and securities brokers.”

Wyden requested the six firms provide answers by Dec. 12 on safeguards of consumer assets and market manipulation. The Senate Agriculture Committee has also scheduled a hearing to explore the collapse of FTX on Dec. 1.

During these events, Bitcoin has been trying to break above $17,000 for the past eighteen days, so some selling pressure clearly remains above that level.

The most likely culprit is the risk of capitulation from Bitcoin miners after they’ve seen their profits squeezed by falling spot prices and surging Bitcoin mining difficulty. Cointelegraph noted that Bitcoin miners face a significant squeeze after expecting to sell accumulated BTC at a profit.

Let’s look at crypto derivatives data to understand whether investors remain risk-averse to Bitcoin.

Futures markets are no longer in backwardation

Fixed-month futures contracts usually trade at a slight premium to regular spot markets because sellers demand more money to withhold settlement for longer. Technically known as contango, this situation is not exclusive to crypto assets.

In healthy markets, futures should trade at a 4% to 8% annualized premium, which is enough to compensate for the risks plus the cost of capital.

Bitcoin 2-month futures annualized premium. Source: Laevitas.ch

Considering the data above, derivatives traders have improved their expectations and the Bitcoin futures premium is no longer negative — meaning the demand for bullish and bearish leverage is equally balanced.

Still, the present 0% premium is far from the 4% threshold for bullishness, indicating professional traders’ reluctance to add leveraged long (bull) positions.

Another notable development is the long-to-short ratio improving over the past two days. To exclude externalities that might have solely impacted the quarterly contracts, traders should analyze the top traders’ long-to-short ratio.

The metric also gathers data from exchange clients’ positions on the spot and perpetual contracts, which better informs how professional traders are positioned.

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

Even though Bitcoin failed to break $17,000 on Nov. 30, professional traders slightly increased their leverage long positions according to the long-to-short indicator. For instance, the Binance traders’ ratio improved from 1.07 on Nov. 28 and presently stands at 1.10.

Similarly, OKX displayed a modest increase in its long-to-short ratio, as the indicator moved from 0.98 to the current 1.03 in two days. The metric slightly declined to 1.02 at the Huobi exchange and this shows that traders did not become bearish after the latest resistance rejection.

The absence of negative price moves is a bullish indicator

Traders should not conclude that the absence of futures premium reflects worsening market conditions because the broader data from the long-to-short ratio has shown whales and market makers adding leverage longs.

The Bitcoin price movement has been surprisingly positive considering the recent negative newsflow and fear relating to the potential of a regulatory crackdown and miners’ ability to withstand a more extended crypto winter.

It will likely take longer for investors to regain confidence and feel that the current contagion risks are over. As a result, bears could continue to exert pressure and sustain Bitcoin below $17,000 in the short-term.

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 derivatives look bearish, but traders believe the ETH bottom is in

Expectations of stringent regulation and further contagion from FTX continue to weigh on ETH price, but derivatives are showing a modest improvement in sentiment.

Ether (ETH) rallied 5.5% in the early hours of Nov. 29, reclaiming the critical $1,200 support. However, when analyzing a broader time frame, the 24% negative performance in the past 30 days significantly impacts investors’ sentiment. Moreover, investors’ mood worsened after BlockFi filed for bankruptcy on Nov. 28.

Newsflow remained negative after the United States Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement with crypto exchange Kraken for “apparent violations of sanctions against Iran.” In a Nov. 28 announcement, the OFAC said Kraken had agreed to pay more than $362,000 to settle its potential civil liability.

Moreover, on Nov. 28, institutional crypto financial services provider Silvergate Capital denied rumors of significant exposure to BlockFi’s bankruptcy. Silvergate added that its losses are less than than $20 million in digital assets and reiterated that BlockFi was not a custodian for its crypto-collateralized loans.

Traders are afraid that Ether could drop below $800 if the bear market continues. One example comes from Crypto Twitter trader Il Capo Of Crypto:

Let’s look at Ether derivatives data to understand if the worsening market conditions have impacted crypto investors’ sentiment.

Pro traders are slowly exiting panic levels

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

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

Ether 2-month futures annualized premium. Source: Laevitas

The above chart shows that derivatives traders remain bearish as the Ether futures premium is negative. Nevertheless, it at least has shown some modest improvement on Nov. 29. Bears can highlight how far we are from a neutral-to-bullish 0% to 4% premium, but the aftermath of a 71% drop in one year holds great weight.

Still, traders should also analyze Ether’s options markets to exclude externalities specific to the futures instrument.

Options traders do not expect a sudden rally

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

The delta skew has gone down in the past week, signaling that options traders are more comfortable offering downside protection.

As the 60-day delta skew stands at 18%, whales and market makers are pricing higher odds of price dumps for Ether. Consequently, both options and futures markets point to pro traders fearing a retest of the $1,070 low is the natural course for ETH.

From an optimistic perspective, data from on-chain analytics firm Glassnode shows that the November 2022 sell-off was the fourth-largest for Bitcoin (BTC). The movement has led to a seven-day realized loss of $10.2 billion.

Consequently, odds are the capitulation for Ether holders has passed and those placing bullish bets right now — defying the ETH derivatives metrics — will eventually come out ahead.

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.

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