Futures

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

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

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

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

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

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

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

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

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

Pro traders were not expecting Bitcoin to bounce

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

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

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

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

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

*Bitcoin dominance. Source: TradingView*

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

Fear has been erased from options markets

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

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

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

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

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

Bitcoin price falls under $19K as data shows pro traders avoiding leverage longs

BTC nose-dived to its lowest level since July 13, but data shows pro traders remain skeptical of a quick recovery.

An $860 surprise price correction on Sept. 6 took Bitcoin (BTC) from $19,820 to $18,960 in less than two hours. The movement caused $74 million in Bitcoin futures liquidations at derivatives exchanges, the largest in almost three weeks. The current $18,733 level is the lowest since July 13 and marks a 24% correction from the rally to $25,000 on Aug. 15.

*Bitcoin/USD 30-min price. Source: TradingView*

It is worth highlighting that a 2% pump toward $20,200 happened in the early hours of Sept. 6, but the move was quickly subdued and Bitcoin resumed trading near $19,800 within the hour. Ether’s (ETH) price action was more interesting, gaining 7% in the 48 hours preceding the market correction.

Any conspiracy theories regarding investors changing their position to favor the altcoin can be dismissed as Ether dropped 5.6% on Sept. 6, while Bitcoin’s $860 loss represents a 3.8% change.

The market has been in a bit of a rut since Aug. 27 comments from U.S. Federal Reserve Chair Jerome Powell was followed by a $1.25 trillion loss in U.S. stocks in a single day. At the annual Jackson Hole Economic Symposium, Powell said that larger interest rate hikes were still firmly on the table, causing the S&P 500 to close down 3.4% that day.

Let’s take a look at crypto derivatives data to understand whether investors have been pricing higher odds of a downturn.

Pro traders have been bearish since last week

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

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

In healthy markets, the indicator should trade at a 4% to 8% annualized premium to cover costs and associated risks. So one can safely say that derivatives traders had been neutral to bearish for the past month because the Bitcoin futures premium remained below 3% the entire time. This data reflects professional traders’ unwillingness to add leveraged long (bull) positions.

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

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

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

The 30-day delta skew had been above the 12% threshold since Sept 1, signaling options traders were less inclined to offer downside protection. These two derivatives metrics suggest that the Bitcoin price dump on Sept. 6 might have been partially expected, which explains the low impact on liquidations.

In comparison, the $2,500 Bitcoin drop on Aug. 18 caused $210 million worth of leveraged long (buyers) liquidations. Still, the prevailing bearish sentiment does not necessarily translate to adverse price action. Therefore, one should tread carefully when whales and market markers are less inclined to add leverage longs and offer downside protection using options.

Hawkish Fed comments and Bitcoin derivatives data point to further BTC downside

BTC and stocks sold-off after comments from the Federal Reserve re-emphasized the Fed’s commitment to lowering high inflation in the United States.

A $750 pump on Aug. 26 took Bitcoin (BTC) from $21,120 to $21,870 in less than two hours. However, the movement was completely erased after comments from U.S. Federal Reserve Chair Jerome Powell reiterated the bank’s commitment to contain inflation by tightening the economy. Following Powell’s speech, BTC price dropped as low as $20,700.

At Jackson Hole, Powell specifically mentioned that “the historical record cautions strongly against prematurely loosening policy.” Right after those remarks, the U.S. stock market indexes reacted negatively, with the S&P 500 dropping 2.2% within the hour.

On the Bitcoin chart, the affable “Bart candle,” a reference to the shape of Bart Simpson’s head, and a descriptor of BTC’s up and down price action, surfaced. Outside of these unpredictable technical analysis indicators, there are other indicators that pointed to Bitcon’s broader neutral-to-bearish sentiment.

Regulators up the pace on crypto legislation

Newsflow for cryptocurrencies has been negative for quite some time and this is also weighing on investor sentiment. On Aug. 24, the U.S. Federal Deposit Insurance Corporation (FDIC) issued cease and desist letters to five companies for allegedly making false representations about deposit insurance related to cryptocurrencies, including FTX US.

On Aug. 25, India-based crypto exchange CoinSwitch had its premises searched by Anti-Money Laundering agents over alleged violations of forex laws. Launched in India in 2020, CoinSwitch successfully raised capital from Coinbase Ventures, Andreessen Horowitz, Sequoia and Tiger Global.

Lastly, on Aug. 26, the U.S. Securities and Exchange Commission postponed a decision for a Bitcoin spot exchange-traded fund (ETF) by global investment firm VanEck. Even though the approval odds were remote, it reinforced the anti-crypto sentiment from the regulator.

Consequently, crypto investors are faced with lingering uncertainty despite the seemingly helpful inflationary scenario, which should favor supply capped assets. For this reason, analyzing crypto derivatives is essential to understanding whether investors have been pricing higher odds of a downturn.

Pro traders were neutral-to-bearish ahead of the dump

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

In healthy markets, the indicator should trade at a 4% to 8% annualized premium to cover costs and associated risks. Yet, that has not been the case because the Bitcoin futures premium remained below 1.8% the entire time. This data reflects professional traders’ unwillingness to add leveraged long (bull) positions.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 12%. The 30-day delta skew had been ranging near the neutral-to-bearish threshold since Aug. 22, signaling options traders were less inclined to offer downside protection.

These two derivatives metrics suggest that the Bitcoin price dump on Aug. 26 might have followed the traditional stock market performance, but crypto traders were definitely not expecting a positive move.

Derivatives data leaves no room for bullish interpretations because the sentiment worsened after Powell’s comments and they further indicate weakening market conditions.

3 reasons why Bitcoin’s drop to $21K and the market-wide sell-off could be worse than you think

There are signs of further turbulence ahead. The absence of a BTC futures premium, $470 million in liquidations and excessive stablecoin lending all point toward new yearly lows.

On Friday, August 19, the total crypto market capitalization dropped by 9.1%, but more importantly, the all-important $1 trillion psychological support was tapped. The market’s latest venture below this just three weeks ago, meaning investors were pretty confident that the $780 billion total market-cap low on June 18 was a mere distant memory.

Regulatory uncertainty increased on Aug. 17 after the United States House Committee on Energy and Commerce announced that they were “deeply concerned” that proof-of-work mining could increase demand for fossil fuels. As a result, U.S. lawmakers requested the crypto mining companies to provide information on energy consumption and average costs.

Typically, sell-offs have a greater impact on cryptocurrencies outside of the top 5 assets by market capitalization, but today’s correction presented losses ranging from 7% to 14% across the board. Bitcoin (BTC) saw a 9.7% loss as it tested $21,260 and Ether (ETH) presented a 10.6% drop at its $1,675 intraday low.

Some analysts might suggest that harsh daily corrections like the one seen today is a norm rather than an exception considering the asset’s 67% annualized volatility. Case in point, today’s intraday drop in the total market capitalization exceeded 9% in 19 days over the past 365, but some aggravants are causing this current correction to stand out.

The BTC Futures premium vanished

The 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.

According to the OKX and Deribit Bitcoin futures premium, the 9.7% negative swing on BTC caused investors to eliminate any optimism using derivatives instruments. When the indicator flips to the negative area, trading in “backwardation,” it typically means there is much higher demand from leveraged shorts who are betting on further downside.

Leverage buyers’ liquidations exceeded $470 million

Futures contracts are a relatively low-cost and easy instrument that allows the use of leverage. The danger of using them lies in liquidation, meaning the investor’s margin deposit becomes insufficient to cover their positions. In these cases, the exchange’s automatic deleveraging mechanism kicks in and sells the crypto used as collateral to reduce the exposure.

*Aggregate crypto 24-hour liquidations, USD. Source: Coinglass*

A trader might increase their gains by 10x using leverage, but if the asset drops 9% from their entry point, the position is terminated. The derivatives exchange will proceed to sell the collateral, creating a negative loop known as a cascading liquidation. As depicted above, the Aug. 19 sell-off presented the highest number of buyers being forced into selling since June 12.

Margin traders were excessively bullish and destroyed

Margin trading allows investors to borrow cryptocurrency to leverage their trading position and potentially increase their returns. As an example, a trader could buy Bitcoin by borrowing Tether (USDT), thus increasing their crypto exposure. On the other hand, borrowing Bitcoin can only be used to short it.

Unlike futures contracts, the balance between margin longs and shorts isn’t necessarily matched. When the margin lending ratio is high, it indicates that the market is bullish—the opposite, a low ratio, signals that the market is bearish.

OKX USDT/BTC margin lending ratio. Source: OKX

Crypto traders are known for being bullish, which is understandable considering the adoption potential and fast-growing use cases like decentralized finance (DeFi) and the perception that certain cryptocurrencies provide protection against USD inflation. A margin lending rate of 17x higher favors stablecoins is not normal and indicates excessive confidence from leverage buyers.

These three derivatives metrics show traders were definitely not expecting the entire crypto market to correct as sharply as today, nor for the total market capitalization to retest the $1 trillion support. This renewed loss of confidence might cause bulls to further reduce their leverage positions and possibly trigger new lows in the coming weeks..

Traders flinch after Ethereum price rejects at $2,000

Data shows pro traders are slightly skeptical of the strength of Ethereum’s rally after ETH price sold off at the $2,000 resistance.

Ether (ETH) rejected the $2,000 resistance on Aug. 14, but the solid 82.8% gain since the rising wedge formation started on July 13 certainly seems like a victory for the bull market. Undoubtedly, the “ultrasound money” dream gets closer as the network expects the Merge transaction to a proof-of-stake (PoS) consensus network on Sept. 16.

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

Some critics point out that the transition out of proof-of-work (PoW) mining has been delayed for years and that the Merge itself does not address the scalability issue. The network’s migration to parallel processing, also known as sharding, is expected to happen later in 2023 or early 2024.

As for the Ether bulls, the EIP-1559 burn mechanism introduced in August 2021 was essential to drive ETH to scarcity, as crypto analyst and influencer Kris Kay illustrates:

~ 11% of all $ETH supply now staked.

~ 2% of all $ETH supply now burned

~ 100% of $ETH is ultra-sound money

+=

few

— Kris Kay | DeFi Donut (@thekriskay) August 15, 2022

The highly anticipated move to the Ethereum Beacon Chain enjoyed a lot of criticism, despite eliminating the need to support the expensive energy-intensive mining activities. Below, DrBitcoinMD highlights the impossibility for ETH stakers to withdraw their coins, creating an unsustainable temporary offer-side reduction.

Anyone still putting their faith behind the gangly Russian pseudointellectual and the Ethereum ponzi deserves what’s coming to them. pic.twitter.com/gjxHXdzuSK

— Doc (@DrBitcoinMD) August 11, 2022

Undoubtedly, the decreased amount of coins available for sale caused a supply shock, especially after the 82.8% rally as Ether has recently undergone. Still, these investors knew the risks of Eth2 staking and no promises were made for instant transfers post-Merge.

Option markets reflect dubious sentiment

Investors should look at Ether’s derivatives markets data to understand how whales and arbitrage desks are positioned. The 25% delta skew is a telling sign whenever traders overcharge for upside or downside protection.

If those market participants feared an Ether price crash, the skew indicator would move above 12%. On the other hand, generalized excitement reflects a negative 12% skew.

*Ether 30-day options 25% delta skew: Source: Laevitas.ch*

The skew indicator remained neutral since Ether initiated the rally, even as it tested the $2,000 resistance on Aug. 14. The absence of improvement in the market sentiment is slightly concerning because ETH option traders are currently assessing similar upside and downside price movement risks.

Meanwhile, the long-to-short data shows low confidence at the $2,000 level. This metric excludes externalities that might have solely impacted the options markets. It also gathers data from exchange clients’ positions on the spot, perpetual and quarterly futures contracts, thus better informing 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 Ether long-to-short ratio. Source: Coinglass*

Even though Ether has rallied 18% from Aug. 4 to Aug. 15, professional traders slightly reduced their leverage long positions, according to the long-to-short indicator. For instance, the Binance traders’ ratio improved somewhat from the 1.16 start but finished the period below its starting level near 1.12.

Meanwhile, Huobi displayed a modest decrease in its long-to-short ratio, as the indicator moved from 0.98 to the current 0.96 in eleven days. Lastly, the metric peaked at 1.70 for the OKX exchange but only slightly increased from 1.46 on Aug. 4 to 1.52 on Aug. 15. Thus, on average, traders were not confident enough to keep their leverage bullish positions.

There hasn’t been a significant change in whales’ and market makers’ leverage positions despite Ether’s 18% gains since Aug. 4. If options traders are pricing similar risks for Ether’s upside and downside moves, there is likely a reason for this. For instance, strong backing of the proof-of-work fork would pressure ETH.

One thing is for sure, at the moment, professional traders aren’t confident that the $2,000 resistance will be easily broken.

FTX partners with Paradigm for ‘one-click’ futures spread trading

The global exchange will provide “guaranteed atomic execution and clearing of both legs” for the futures trades on eight cryptocurrencies.

Paradigm has announced the launch of spreads trading in partnership with crypto exchange FTX.

In a Friday blog post, Paradigm said under the FTX partnership users would be able to utilize “one-click” trading with “no leg risk” for the spread between spot, perpetuals and fixed maturity futures on Bitcoin (BTC), Ether (ETH), Solana (SOL), Avalanche (AVAX), ApeCoin (APE), Dogecoin (DOGE), Chainlink (LINK) and Litecoin (LTC). FTX will provide “guaranteed atomic execution and clearing of both legs” for the trades.

According to Paradigm CEO Anand Gomes, the arrangement was aimed at drawing in new crypto investors interested in cash and carry trades — leveraging crypto spot purchases and futures instruments on FTX. Gomes added that the rollout could lead to new product offerings “further down the road.”

FTX has officially partnered with leading institutional liquidity network @tradeparadigm to make it easier and cheaper than ever to trade the spread between spot, perpetuals and futures instruments on $BTC, $ETH, $SOL, $AVAX, $APE, $DOGE, $LINK and $LTC!https://t.co/O7chj4l09C pic.twitter.com/mbqjpo6qCQ

— FTX (@FTX_Official) August 12, 2022

The firm said using atomic execution for both legs of the spreads trading was “structurally less risky” than those executed on a traditional exchange, allowing market makers to “quote much tighter prices and in significantly larger sizes.” According to Paradigm, the fees will be 50% less than that when executing two individual outright trades.

In 2019, Paradigm partnered with crypto derivatives exchange Deribit to launch a block trading solution.

Bitcoin derivatives show a lack of confidence from bulls

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

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

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

According to Bitcoin derivatives data, investors are pricing higher odds of a downturn, but recent improvements in global economic perspective might take the bears by surprise.

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

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

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

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

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

On-chain analysis corroborates longer-term bear market

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

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

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

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

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

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

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

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

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

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

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

Ethereum futures backwardation hints at 30% ‘airdrop rally’ ahead of the Merge

Backwardation reflects a market condition wherein spot prices trade higher than future prices.

Ether (ETH) bulls like a positive spread between its spot and ETH futures prices because the so-called contango reflects optimism about a higher rate in the future. But as of Aug. 1, the Ethereum futures curve slid in the opposite direction.

Ethereum quarterly futures in backwardation

On the daily chart, Ethereum futures quarterly contracts, scheduled to expire in December 2022, have slipped into backwardation, a condition opposite to contango, wherein the futures price becomes lower than the spot price.

The spread between Ethereum’s spot and futures price grew to -$8 on Aug. 1.

*ETH230-ETHUSD daily price chart. Source: TradingView*

One one hand, the current ETH spot price being higher than its year-end outlook appears like a bearish sign. However, the conditions surrounding the current negative spread between the Ether spot and futures price suggests traders may actually be bullish on ETH.

For instance, Bitcoin (BTC) has gained 15% since its futures entered backwardation in late June for the first time in a year.

ETH could rally on “airdrop” hopes

Moreover, a potential chain split will likely be bullish in the run-up to the Merge in September, according to some analysts.

Roshun Patel, former vice president of institutional lending at Genesis Trading, noted that the December Ether futures have flipped into backwardation due to Ethereum “fork odds,” which could prompt traders to buy spot ETH ahead of the Merge.

Meanwhile, Patel hinted that traders could be offsetting their upside spot risks by taking bearish positions on December futures contracts.

dec flipping into backwardation on eth starting to price in fork odds. Back in 2020 the play with the bchabc fork was buy spot and short the quarts pic.twitter.com/Oyde1htnz8

— Roshun Patel (@roshunpatel) July 31, 2022

The statement came after Galois Capital’s survey on the Merge . In the July 28 Twitter poll, the crypto hedge fund asked its followers whether or not the Merge would end up splitting the Ethereum chain into the proof-of-work (PoW) ETH1 and a proof-of-stake (PoS) ETH2.

Of the respondents, 33.1% said ththe upgrade would lead to a hard fork, while 53.7% anticipated a smooth network transition.

Question 1: What happens during the merge? If Choice 2 or 3 go to Questions 2-5.

— Galois Capital (@Galois_Capital) July 27, 2022

Ethereum’s potential chain split means that ETH holders will have an equal amount of tokens on both chains. In other words, an airdrop that grants ETH holders the same amount of ETH1 tokens, a la Ethereum Classic (ETC) in 2016.

ETH price technicals flash “golden cross”

Ether now consolidates inside a key $1,650–$1,750 resistance bar that served as support during the May–June 2022 session.

Meanwhile, the token’s 20-day (green) and 50-day (red) exponential moving averages (EMA) have also formed a “golden cross,” suggesting an interim bullish outlook.

*ETH/USD daily price chart. Source: TradingView*

A breakout emerging from the $1,650–$1,750 resistance bar could have ETH eye $2,150 as its next upside target. This level was instrumental as resistance in May and June and support in January. It now coincides with the 200-day EMA (the blue wave) near $2,180, up almost 30% from August 1’s price.

Conversely, a pullback from the resistance bar could expose ETH toward the 20-day EMA (~$15,250) and the 50-day EMA ($1,500) waves.

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

Pro Bitcoin traders are uncomfortable with bullish positions

BTC derivatives used by whales and market makers do not support a continuous price recovery above $24,000.

The previous $19,000 Bitcoin (BTC) support level becomes more distant after the 22.5% gain in nine days. However, little optimism has been instilled as the impact of the Three Arrows Capital (3AC), Voyager, Babel Finance and Celsius crises remain uncertain. Moreover, the contagion has claimed yet another victim after Thai crypto exchange Zipmex halted withdrawals on July 20.

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

Bulls’ hopes depend on the $23,000 support strengthening as time goes by, but derivatives metrics show professional traders are still highly skeptical of continuous recovery.

Macroeconomic headwinds favor scarce assets

Some analysts attribute the crypto market strength to China’s lower-than-expected gross domestic product data, causing investors to expect further expansionary measures by policymakers. China’s economy expanded 0.4% in the second quarter versus the previous year, as the country continued to struggle with self-imposed restrictions to curb another outbreak of COVID-19 infections, according to CNBC.

The United Kingdom’s 9.4% inflation in June marked a 40-year high, and to supposedly aid the population, Chancellor of the Exchequer Nadhim Zahawi announced a $44.5 billion (GBP 37 billion) assistance package for vulnerable families.

Under these circumstances, Bitcoin reversed its downtrend as policymakers scrambled to solve the seemingly impossible problem of slowing economies amid ever-increasing government debt.

However, the cryptocurrency sector faces its own issues, including regulatory uncertainties. For instance, on July 21, the United States Securities and Exchange Commission (SEC) labeled nine tokens as “crypto asset securities,” thus not only falling under the regulatory body’s purview but liable for having failed to register with it.

Expressly, the SEC referred to Powerledger (POWR), Kromatika (KROM), DFX Finance (DFX), Amp (AMP), Rally (RLY), Rari Governance Token (RGT), DerivaDAO (DDX), LCX, and XYO. The regulator brought charges against a former Coinbase product manager for “insider trading” after they allegedly used non-public information for personal benefit.

Currently, Bitcoin investors face too much uncertainty despite the seemingly helpful macroeconomic backdrop, which should favor scarce assets such as BTC. For this reason, an analysis of derivatives data is valuable in understanding whether investors are pricing higher odds of a downturn.

Pro traders remain skeptical of price recovery

Retail traders usually avoid quarterly futures due to their price difference from spot markets. Still, they are professional traders’ preferred instruments because they prevent the perpetual fluctuation of contracts’ funding rates.

These fixed-month contracts usually trade at a slight premium to spot markets because investors demand more money to withhold the settlement. But this situation is not exclusive to crypto markets, so futures should trade at a 4% to 10% annualized premium in healthy markets.

The Bitcoin’s futures premium flirted with the negative area in mid-June, something is typically seen during extremely bearish periods. The mere 1% basis rate, or annualized premium, reflects professional traders’ unwillingness to create leverage long (bull) positions. Investors remain skeptical of the price recovery despite the low cost of opening a bullish trade.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 12%, while the opposite holds true during bullish markets.

The 30-day delta skew peaked at 21% on July 14 as Bitcoin struggled to break the $20,000 resistance. The higher the indicator, the less inclined options traders are to offer downside protection.

More recently, the indicator moved below the 12% threshold, entering a neutral area, and no longer sitting at the levels reflecting extreme aversion. Consequently, options markets currently display a balanced risk assessment between a bull run and another re-test of the $20,000 area.

Some metrics suggest that the Bitcoin cycle bottom is behind us, but until traders have a better view of the regulatory outlook and centralized crypto service providers’ liquidity as the Three Arrows Capital crisis unfolds, the odds of breaking above $24,000 remain uncertain.

How Bitcoin’s strong correlation to stocks could trigger a drop to $8,000

The absence of a CME Bitcoin futures premium, unrelenting record-high inflation and investor concerns over the economy are all factors weighing on BTC price.

The Bitcoin (BTC) price chart from the past couple of months reflects nothing more than a bearish outlook and it’s no secret that the cryptocurrency has consistently made lower lows since breaching $48,000 in late March.

*Bitcoin price in USD. Source: TradingView*

Curiously, the difference in support levels has been getting wider as the correction continues to drain investor confidence and risk appetite. For example, the latest $19,000 baseline is almost $10,000 away from the previous support. So if the same movement is bound to happen, the next logical price level would be $8,000.

Traders are afraid of regulation and contagion

On July 11, the Financial Stability Board (FSB), a global financial regulator including all G20 countries, announced that a framework of recommendations for the crypto sector is expected in October. The FSB added that international regulators need to supervise crypto markets in line with the principle of “same activity, same risk, same regulation.”

In a written speech on July 12, Jon Cunliffe, deputy governor for financial stability at the Bank of England, said that crypto is somehow over and it should not be a concern anymore. Cunliffe added: “innovation has to happen within a framework in which risks are managed.”

To date, investors still haven’t figured out the total losses from deposits on crypto lenders Celsius and Voyager Digital, and both firms continue to seek either a recovery plan or bankruptcy. According to Voyager, the firm still holds $650 million worth of “claims against Three Arrows Capital,” so the exact numbers of customer assets remain unknown.

The negative newsflow is reflected in the CME’s Bitcoin futures contracts premium. This data measures the difference between longer-term futures contracts and the current spot prices in regular markets.

Whenever this indicator fades or turns negative, this is an alarming red flag. This situation is also known as backwardation and indicates that bearish sentiment is present.

*BTC CME 1-month forward contract premium vs. Coinbase/USD. Source: TradingView*

These fixed-month contracts usually trade at a slight premium, indicating that sellers are requesting more money to withhold settlement for longer. As a result, futures should trade at a 0.25%–0.75% premium in healthy markets, a situation known as contango.

Notice how the indicator has stood below the “neutral” range since early April, since Bitcoin failed to sustain levels above $45,000. The data shows that institutional traders are unwilling to open leverage long positions, although it is not yet a bearish structure.

Macroeconomic fears are preventing investors from trading crypto

Exchange-provided data highlights traders’ long-to-short net positioning. By analyzing every client’s position on the spot, perpetual and futures contracts, one can better understand whether professional traders are leaning bullish or bearish.

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

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

Despite Bitcoin’s 11% correction from July 9 to 12, top traders have increased their leverage longs. The long-to-short ratio at Binance remained relatively flat at 1.13, while the top traders at Huobi started at 0.95 and finished the period at 0.93. However, this impact was more than compensated by OKX traders increasing their bullish bets from 1.09 to 1.32.

The lack of a premium in the CME futures contract is not concerning because Bitcoin is struggling with the $20,000 resistance. Furthermore, top traders on derivatives exchanges have increased their longs despite the 11% price drop in three days.

Regulatory pressure is unlikely to recede in the short term and at the same time, there’s not much that the Federal Reserve can do to suppress inflation without triggering some form of an economic crisis. For this reason, pro traders are not rushing to buy the dip because Bitcoin’s correlation to traditional assets remains high.