Futures

Bitcoin traders expect a ‘generational bottom,’ but BTC derivatives data disagrees

BTC bulls think the bottom is in, but a neutral-to-bearish price formation and the absence of a futures premium contradict their optimism.

A descending triangle pattern has been pressuring Bitcoin (BTC) for the past three weeks and while some traders cite this as a bullish reversal pattern, the $19,000 support remains a crucial level to determine the bulls’ fate. 

BTC-USD 12-hour price. Source: TradingView

Despite the apparent lack of a clear price bottom, Bitcoin derivatives metrics have significantly improved since June 30 and positive news from global asset manager VanEck may have eased traders’ sentiment.

On July 5, two retirement funds in the U.S. state of Virginia announced a $35 million commitment to VanEck’s cryptocurrency-focused investment fund.

On the same day, a Huobi exchange subsidiary received its money services business (MSB) license from the United States Financial Crimes Enforcement Network (FinCEN). The Seychelles-based company stated that the license creates a foundation for expanding crypto-related business in the United States.

A bit of positive news came out on July 7 as decentralized finance staking and lending platform Celsius Network announced that it had fully repaid its outstanding debt to Maker (MKR) protocol.

Celsius is among several crypto yield platforms on the brink of insolvency after historic losses across multiple positions. Forced sales on leveraged positions by exchanges and decentralized finance (DeFi) applications accelerated the recent cryptocurrency price crash.

Currently, traders face mixed sentiment between possible contagion impacts and their optimism that the $19,000 support is gaining strength. For this reason, analyzing derivatives data is essential to understand whether investors are pricing higher odds of a market downturn.

Bitcoin futures premium flips slightly positive

Retail traders usually avoid quarterly futures due to their fixed settlement date and price difference from spot markets. However, the contracts’ biggest advantage is the lack of a fluctuating funding rate; hence, the prevalence of arbitrage desks and professional traders.

These fixed-month contracts tend to trade at a slight premium to spot markets as sellers request more money to withhold settlement longer. This situation is technically known as “contango” and is not exclusive to crypto markets. Thus, futures should trade at a 5% to 10% annualized premium in healthy markets.

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

Bitcoin annualized futures’ premium went negative on June 28, indicating low demand from leverage buyers. Yet, the bearish structure did not hold for long as the indicator shifted to the positive area on July 4.

Related: Genesis Trading CEO confirms 3AC exposure, parent company helps plug losses

Option traders remain skeptical of each price pump

To exclude externalities specific to the Bitcoin futures instrument, traders must also analyze the options markets. For instance, the 25% delta skew shows when arbitrage desks are overcharging for upside or downside protection.

Options traders give higher odds for a price increase during bullish markets, causing the skew indicator to fall below -12%. Meanwhile, a market’s generalized fear sentiment induces a 12% or higher positive skew.

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

June 18 marked the highest-ever record 30-day delta skew, typical of extremely bearish markets. Still, the current 16% skew level shows investors’ reluctance to provide downside protection, a fact reflected by the overcharging for put options.

Contagion is still a threat that adds pressure across the market

It’s tough to call whether $17,580 was the cycle low, but some traders attribute the movement to Three Arrows Capital’s failure to meet its margin calls.

Some traders are calling for a “generational bottom,” but there is still a long way before investors flip bullish as Bitcoin remains locked in a descending triangle formation.

From one side, Bitcoin derivatives metrics show modest improvement since June 30. On the other hand, investors remain suspicious of further contagion from such an important venture capital and crypto asset manager.

Sometimes the best trade is to wait for a clearer market structure and avoid leverage at all costs, regardless of your certainty of a cycle 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.

Large Bitcoin liquidations mean one man’s pain is another man’s pleasure — Time to buy the dip?

Pro traders were forced to cut their losses after margin and futures markets became over-leveraged, creating a potential entry point for bullish buyers.

Bitcoin (BTC) has been unable to restore the $24,000 support since Celsius, a popular staking and lending platform, paused withdrawals from its platform on June 13. A growing number of users believe Celsius mismanaged its funds following the collapse of the Anchor Protocol on the Terra (LUNA; now LUNC) ecosystem and rumors of its insolvency continue to circulate.

An even larger issue emerged on June 14 after crypto venture capital firm Three Arrows Capital (3AC) reportedly lost $31.4 million through trading on Bitfinex. Furthermore, 3AC was a known investor in Terra, which experienced a 100% crash in late May.

Unconfirmed reports that 3AC faced liquidations totaling hundreds of millions from multiple positions agitated the market in the early hours of June 15, causing Bitcoin to trade at $20,060, its lowest level since Dec. 15, 2020.

Let’s take a look at current derivatives metrics to understand whether June 15’s bearish trend reflects top traders’ sentiment.

Margin markets deleveraged after a brief spike in longs

Margin trading allows investors to borrow cryptocurrency and leverage their trading position to potentially increase returns. For example, one can buy cryptocurrencies by borrowing Tether (USDT) to enlarge exposure.

On the other hand, Bitcoin borrowers can short the cryptocurrency if they bet on its price decline, and unlike futures contracts, the balance between margin longs and shorts isn‘t always matched. This is why analysts monitor the lending markets to determine whether investors are leaning bullish or bearish.

Interestingly, margin traders boosted their leverage long (bull) position on June 14 to the highest level in two months.

Bitfinex margin Bitcoin/USD longs/shorts ratio. Source: TradingView

Bitfinex margin traders are known for creating position contracts of 20,000 BTC or higher in a very short time, indicating the participation of whales and large arbitrage desks.

As the above chart indicates, even on June 14, the number of BTC/USD long margin contracts outpaced shorts by 49 times, at 107,500 BTC. For reference, the last time this indicator stood below 10, favoring longs, was on March 14. The result benefited the counter-traders at that time, as Bitcoin rallied 28% over the following two weeks.

Bitcoin futures data shows pro traders were liquidated

The top traders’ long-to-short net ratio excludes externalities that might have impacted the margin instruments. By analyzing these whale positions on the spot, perpetual and futures contracts, one can better understand whether professional traders are bullish or bearish.

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

It’s important to note the methodological discrepancies between different exchanges, so the absolute figures have less importance. For example, while Huobi traders have kept their long-to-short ratio relatively unchanged between June 13 and Ju15, professional traders at Binance and OKX reduced their longs.

This movement could represent liquidations, meaning the margin deposit was insufficient to cover their longs. In these cases, the exchange’s automatic deleveraging mechanism takes place by selling the Bitcoin position to reduce the exposure. Either way, the long-to-short ratio is affected and signals a less bullish net position.

Liquidations could represent a buying opportunity

Data from derivatives markets, including margin and futures, show that professional traders were definitely not expecting such a deep and continuous price correction.

Even though there has been a high correlation to the stock market and the S&P 500 index posted a 21.6% year-to-date loss, professional crypto traders were not expecting Bitcoin to drop another 37% in June.

While leverage allows one to maximize gains, it can also force cascading liquidations such as the recent events seen this week. The automated trading systems of exchanges and DeFi platforms sell investors’ positions at whatever price is available when the collateral is insufficient to cover the risk and this put heavy pressure on spot markets.

These liquidations sometimes create a perfect entry point for those savvy and brave enough to counter-trade excessive corrections due to lack of liquidity and the absence of bids on the trading platforms. Whether or not this is the final bottom is something that will be impossible to determine until a few months after this volatility has passed.

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 derivatives data shows no ‘bottom’ in sight as traders avoid leveraged long positions

Is it time to be greedy? Experienced market makers and arbitrage desks have turned strongly risk-averse as BTC price dropped to $22,600.

Bitcoin (BTC) lost the $28,000 support on June 12 following worsening macroeconomic conditions. The United States Treasury 2-year note yield closed on June 10 at 3.10%, its highest level since December 2007. This shows that traders are demanding higher rates to hold their debt instruments and expect inflation to remain a persistent challenge.

Louis S. Barnes, a senior loan officer at Cherry Creek, stated that as the United States reported its highest inflation in 40 years, the mortgage-backed securities (MBS) markets had zero buyers. Barnes added:

“Stocks are down 2% today [June 10], but would be down a hell of a lot more if considering what a full-stop to housing will mean.”

MicroStrategy and Celsius leverage use raised alarms

Bitcoin’s sell-off is adding more pressure to the cryptocurrency market and various media are discussing whether the U.S. Nasdaq-listed analytics and business intelligence company MicroStrategy and its $205 million Bitcoin-collateralized loan with Silvergate Bank will add to the current crypto collapse. The interest-only loan was issued on March 29, 2022, and secured by Bitcoin, which is held in a mutually authorized custodian’s account.

As stated by Microstrategy’s earnings call by chief financial officer Phong Le on May 3, if Bitcoin plummeted to $21,000, an additional amount of margin would be required. However, on May 10, Michael Saylor clarified that the entire 115,109 BTC position could be pledged, reducing the liquidation to $3,562.

Lastly, Crypto staking and lending platform Celsius suspended all network withdrawals on June 13. Speculations of insolvency quickly emerged as the project moved massive amounts of wBTC and Ether (ETH) to avoid liquidation at Aave (AAVE), a popular staking and lending platform.

Celsius reported surpassing $20 billion in assets under management in August 2021, which was ideally more than enough to cause a doomsday scenario. While there is no way to determine how this liquidity crisis will unfold, the event caught Bitcoin’s investors at the worst possible moment.

Bitcoin futures metrics are near bearish territory

Bitcoin’s futures market premium, the primary derivatives metric, briefly moved to the negative area on June 13. The metric compares longer-term futures contracts and the traditional spot market price.

These fixed-calendar contracts usually trade at a slight premium, indicating that sellers request more money to withhold settlement for longer. As a result, the three-month futures should trade at a 4% to 10% annualized premium in healthy markets, a situation known as contango.

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

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

While the futures premium had already been below the 4% threshold during the past nine weeks, it managed to sustain a moderate premium until June 13. While the current 1% premium might seem optimistic, it is the lowest level since April 30 and sits at the edge of a generalized bearish sentiment.

An unhealthy derivatives market is an ominous sign

Traders should analyze Bitcoin’s options pricing to further prove that the crypto market structure has deteriorated. For example, the 25% delta skew compares similar call (buy) and put (sell) options. This metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.

The opposite holds when greed is the prevalent mood, which causes the 25% delta skew indicator to shift to the negative area.

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

Readings between negative 8% and positive 8% are usually deemed neutral, but the 26.6 peak on June 13 was the highest reading ever registered. This aversion to pricing downside risks is unusual even for March 2020, when oil futures plunged to the negative side for the first time in history and Bitcoin crashed below $4,000.

The main message from Bitcoin derivatives markets is that professional traders are unwilling to add leverage long positions despite the extremely low cost. Furthermore, the absurd price gap for put (sell) options pricing shows that the June 13 crash to $22,600 caught experienced arbitrage desks and market markers by surprise.

For those aiming to “buy the dip” or “catch a falling knife,” a clear bottom will only be formed once derivatives metrics imply that the market structure has improved. That will require the BTC futures’ premium to reestablish the 4% level and options markets to find a more balanced risk assessment as the 25% delta skew returns to 10% or lower.

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 bears have plenty of reasons to hold BTC price below $32,000

Regulatory pressure and macroeconomic uncertainty continue to pin traders’ sentiment and BTC price under $32,000.

Since May 10, the Bitcoin (BTC) chart shows a relatively tight range of price movement and the cryptocurrency has failed to break the $32,000 resistance on multiple occasions.

BTC-USD 12-hour price at Coinbase. Source: TradingView

The choppy trading partially reflects the uncertainty of the stock market as the S&P 500 Index ranged from 3,900 to 4,180 in the same period. On one side, there has been economic growth in the Eurozone where the gross domestic product grew 5.1% year over year. On the other, inflation continues to soar, reaching 9% in the United Kingdom.

Further adding to Bitcoin’s volatility was the digital assets regulatory framework proposal introduced to the U.S. Senate on June 7. The 69-page bipartisan bill is supported by Senator Cynthia Lummis of Wyoming and Senator Kirsten Gillibrand of New York and it addresses the CFTC’s authority over applicable digital asset spot markets.

On June 3, South Korea’s Financial Supervisory Service (FSS) began an inquiry with 157 payment gateway services that work with digital assets. Previously, on May 24, South Korean officials opened an investigation against Do Kwon, the primary figure in the Terra incident.

The U.S. Securities and Exchange Commission (SEC) also broke out an investigation against Binance Holdings on June 6. Binance is the world’s largest crypto exchange in volume terms and the SEC is evaluating whether the BNB token initial coin offering violated securities rules.

On June 6, IRA Financial Trust, a platform providing self-directed digital asset retirement and pension accounts, filed a lawsuit against Gemini cryptocurrency exchange and claimed that a Feb. 8 breach led to a $36 million loss in crypto assets from customer accounts under Gemini’s custody.

Let’s look at Bitcoin’s futures data to understand how professional traders are positioned, including whales and market makers.

Derivatives metrics reflect investors’ bearish expectations

Traders should analyze Bitcoin futures market data to understand how professional traders are positioned. The quarterly contracts are experienced traders’ preferred instrument to avoid the perpetual futures’ fluctuating funding rate.

The basis indicator measures the difference between longer-term futures contracts and the current spot market levels. The Bitcoin futures annualized premium should run between 5% to 10% to compensate traders for “locking in” the money for two to three months until the contract expiry.

Bitcoin 3-month futures annualized premium. Source: Laevitas

Bitcoin’s futures premium has been below 4% since April 12, a reading typical of bearish markets. Even more concerning is that the last time these professional traders were bullish was over six months ago when the metric surpassed the 10% threshold.

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

During bullish markets, options investors give higher odds for a price pump, causing the skew indicator to move below negative 12%. On the other hand, a bear market’s generalized panic induces a positive 12% or higher skew.

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

The 30-day delta skew has ranged from 12.5% to 23% between June 1 and 7, which signals options traders are pricing higher odds of a bearish movement. Still, it shows a moderate sentiment improvement from the previous couple of weeks.

Cryptocurrency regulation and weak economic numbers are clearly weighing on investor sentiment and derivatives data shows professional Bitcoin traders avoiding leveraged long positions, plus they are reluctant to take downside-risk.

At the moment, it’s clear that bears are comfortable with setting $32,000 as a resistance level and repeat drops to the $28,200 level are likely to continue.

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.

3 reasons why Ethereum price is pinned below $2,000

ETH price is meeting strong resistance at the $2,000 level and these trading metrics explain why.

Ether’s (ETH) market structure continues to be bearish despite the failed attempt to break the descending channel resistance at $2,000 on May 31. This three-week-long price formation could mean that an eventual retest of the $1,700 support is underway.

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

On the non-crypto side, a number of equities-related factors are translating to negative sentiment in the crypto market. This week Microsoft (MSFT) lowered its profit and revenue outlook, citing challenging macroeconomic conditions. The U.S. Federal Reserve signalled in its periodic “Beige Book” that economic activity may have cooled in some parts of the country and the Fed is about to reduce its $9 trillion asset portfolio to combat persistent inflation.

On the bright side, an institutional investor survey published by The Economist magazine showed that 85% of the respondents agreed that open-source cryptocurrencies like Bitcoin (BTC) or Ether (ETH) are useful as diversifiers in portfolio or treasury accounts.

From the macroeconomic perspective, investors are still risk-averse, which could translate to a reduced appetite for cryptocurrencies.

Ethereum still has a mountain to climb

The Ethereum network’s total value locked (TVL), the total amount of assets deposited to the network, has dropped by 5.5% since Ether began its downtrend three weeks ago.

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

The network’s TVL peaked at 28.7 billion Ether on May 10 and currently stands at 27.1 million. Decentralized finance (DeFi) deposits were deeply impacted by the USD Terra (UST) — now known as TerraUSD Classic (USTC) — stablecoin collapse on May 10. All things considered, the indicator shows a moderate decrease, which is somewhat expected after such an unprecedented event.

To understand how professional traders are positioned, let’s look at Ether’s futures market data. Quarterly futures are whales and arbitrage desks’ preferred instruments due to their lack of a fluctuating funding rate.

These fixed-month contracts usually trade at a 5% to 12% premium to spot markets, indicating that sellers request more money to withhold settlement longer. This situation is also common in traditional assets such as stocks and commodities.

Ether futures 3-month annualized premium. Source: Laevitas

Over the past month, Ether’s futures contracts premium has remained near 3%, which is below the 5% neutral-market threshold. The lack of leverage demand from buyers is evident as the current 2.5% basis indicator remains depressed despite Ether’s 24% negative performance in three weeks.

Fear a global downturn continues to impact crypto prices

Ether’s crash to $1,700 on May 27 drained any leftover bullish sentiment and, more importantly, caused $235 million in leverage long futures contract liquidations. Even though Ether price tested the $2,000 resistance on May 31, there is no evidence of strength from derivatives or DeFi deposits, according to the TVL metric.

As investors’ focus remains on traditional markets and the impacts of global macroeconomic worsening conditions, there is little hope for a sustainable Ether price decoupling to the upside.

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.

CFTC sues Gemini claiming crypto exchange lied in futures contract evaluation

The agency says the exchange gave false information in person and in documents in its 2017 bid to be among the first to offer Bitcoin futures contracts.

The United States Commodity Futures Trading Commission (CFTC) filed suit against Gemini Trust Co. in the U.S. Southern District Court of New York on Thursday. The CFTC claimed in the civil suit that Gemini made false or misleading statements to the CFTC in 2017 during in-person meetings and in documents, violating the Commodity Exchange Act and other regulations. 

The agency was making an evaluation of the potential self-certification of a Bitcoin (BTC) futures contract to be based on the spot Bitcoin price determined by an auction held on Gemini’s digital asset trading platform.

The CFTC was considering whether the proposed Bitcoin futures contract would be susceptible to manipulation. The proposed Bitcoin futures contract would have been among the first digital asset futures contracts listed.

Gemini is the cryptocurrency trading platform founded by brothers Cameron and Tyler Winklevoss. It announced staff cuts Thursday and is preparing to lay off 10% of its workers due to the crypto market downturn. 

The CFTC said in a statement that it is seeking disgorgement of ill-gotten gains, monetary penalties and injunctions relating to registration and trading and against further violations of the Commodity Exchange Act. 

Related: Bipartisan bill to give CFTC authority over exchanges and stablecoins

“This enforcement action sends a strong message that the Commission will act to safeguard the integrity of the market oversight process,” CFTC acting director of enforcement Gretchen Lowe said in the statement.

Gemini told Cointelegraph in a statement: 

“Gemini has been a pioneer and proponent of thoughtful regulation since day one. We have an eight year track-record of asking for permission, not forgiveness, and always doing the right thing. We look forward to definitively proving this in court.”

Bitcoin futures began trading on the CBOE on December 10, 2017, based on the price of the cryptocurrency on the Gemini exchange.

Bitcoin price broke to the upside, but where are all the leveraged long traders?

BTC price looks to break out of its downtrend, yet pro traders are still unwilling to add leveraged positions.

This week’s Bitcoin (BTC) chart leaves little doubt that the symmetrical triangle pattern is breaking to the upside after constricting the price for nearly 20 days. However, derivatives metrics tell a completely different story because professional traders are unwilling to add leveraged positions and are overcharging for downside protection.

BTC-USD 12-hour price at Kraken. Source: TradingView

Will BTC reverse course even as macroeconomic conditions crumble?

Whether BTC turns the $30,000 to $31,000 level into support depends to some degree on how global markets perform.

The last time U.S. stock markets faced a seven-week consecutive downtrend was over a decade ago. New home sales in the U.S. declined for the fourth straight month, which is also the longest streak since October 2010.

China saw a whopping 20% year-on-year decline for its on-demand services, the worst change on record. According to government data released on May 30, consumer spending for internet services from January to April stood at $17.7 billion.

The value of stock offerings in Europe also hit the worst level in 19 years after rising interest rates, inflation and macroeconomic uncertainties caused investors to seek shelter in cash positions. According to Bloomberg, initial public offerings and follow-on transactions raised a mere $30 billion throughout 2022.

All of the above make it easier to understand the discrepancy between the recent Bitcoin price recovery to $32,300 and weak derivatives data because investors are pricing higher odds of a downturn, primarily driven by worsening global macroeconomic conditions.

Derivatives metrics are neutral-to-bearish

Retail traders usually avoid quarterly futures due to their price difference from spot markets, but they are professional traders’ preferred instrument because they avoid the perpetual contracts fluctuating funding rate.

These fixed-month contracts usually trade at a slight premium to spot markets because investors demand more money to withhold the settlement. This situation is not exclusive to crypto markets. Consequently, futures should trade at a 5% to 12% annualized premium in healthy markets.

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

According to data from Laevitas, Bitcoin’s futures premium has been below 4% since April 12. This reading is typical of bearish markets and it’s worrisome that the metric failed to break above the 5% neutral threshold even as the price moved toward $32,000.

To exclude externalities specific to the futures instrument, traders must also analyze the Bitcoin options markets. The 25% delta skew is optimal as it shows when Bitcoin market makers and arbitrage desks are overcharging for upside or downside protection.

During bearish markets, options investors give higher odds for a price crash, causing the skew indicator to move above 12%. On the other hand, a bull markets’ generalized excitement induces a negative 12% or lower skew.

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

The 30-day delta skew peaked at 25.4% on May 14, the highest-ever record and typical of extremely bearish markets. However, the situation improved on May 30 and 31 as the indicator stabilized at 14%, but it prices in higher odds of a price crash. Still, it shows a moderate sentiment improvement from derivatives traders.

The risks of a global economic slowdown are probably the main reason why Bitcoin options markets are stressed and why the futures premium is still low. The 30-day correlation of BTC versus the S&P 500 index is at 89%, meaning traders have fewer incentives to place bullish bets on cryptocurrencies.

Some metrics suggest that the stock market may have bottomed last week, especially since it’s trading 8.5% above the May 20 intraday low, but weak economic numbers are weighing on investor sentiment. This drives the risk-averse momentum and has a negative impact on cryptocurrency markets.

Until there’s a better definition for traditional finance and the world’s biggest economies, Bitcoin traders should continue to avoid building leveraged long positions and maintain a bearish stance, a feature that is currently reflected in options markets.

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.