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$920B is the number to watch now that crypto’s trillion dollar total market cap is gone

The crypto market is taking a walloping, and there are three important reasons why BTC’s $380 billion valuation is a key support for the entire market.

Big round numbers always pique the interest of investors and the $1 trillion total crypto market capitalization is no exception. It’s a level that held for 48 days before collapsing on March 9. After a 16-hour negative 8.6% price movement, the indicator fell to $914 billion, its lowest level since Jan.13.

*Total crypto market cap in USD, 1-day. Source: TradingView*

Concerns about the stability of the U.S. banking industry, specifically the downfall and subsequent closure of Silvergate Bank (SI) on March 8 and the shut down of Silicon Valley Bank (SVB) on March 10 by The California Department of Financial Protection and Innovation, are among the reasons for breaking below the $1 trillion capitalization support. Silvergate was a critical fiat gateway network for the most important cryptocurrency exchanges and intermediaries.

The California Department of Financial Protection and Innovation did not provide an explanation for SVB Bank’s closure. Nonetheless, it stated that the financial institution will be the first FDIC-insured institution to fail in 2023.

Silicon Valley Bank possessed more than $200 billion in assets and provided financial services to a number of crypto-focused venture firms, including Andreessen Horowitz and Sequoia Capital.

Don’t forget, however, the ongoing efforts of the U.S. Federal Reserve to curb inflation, which include increasing interest rates above 2% in August 2022 and reducing its balance sheet through asset sales. In addition to this, U.S. labor market data released on March 10 revealed the creation of 311,000 jobs in February 2023, supporting the notion that the Fed’s anti-stimulus measures require additional firepower.

The unexpected result of the central bank’s cautious stance is a greater likelihood of a longer and more severe economic downturn. Investors demanded a higher return for two-year treasury notes versus longer-term dated bonds, causing the inverted bond curve to reach its highest level in 40 years.

What is the significance of the $920 billion market capitalization?

A notable bounce occurred as total crypto capitalization reached $920 billion, indicating large buyers around that level, which may appear insignificant at first but is critical for Bitcoin (BTC), the leading cryptocurrency. To begin, one must understand that Bitcoin accounts for roughly half of total crypto capitalization when stablecoins are excluded.

As a result, Bitcoin’s $380 billion market capitalization serves as the foundation for the $920 billion total. Three reasons explain why such a level is critical from a valuation standpoint.

Bitcoin is still a top-20 global tradable asset, valued at over $380 billion, ahead of the giant retailer Walmart (WMT), international payment processor Mastercard (MA), and the highly profitable consumer discretionary Procter & Gamble (PG). It becomes more difficult to attribute failure after such a remarkable accomplishment.

Despite Bitcoin’s 50% decline in 12 months to $19,650, its performance is comparable to that of billion-dollar companies such as Credit Suisse Group (CS) down by 63%, First Republic Bank (FRC) 51%, Warner Bros. (WBD) 43%, and Intel Corporation (INTC) 43%.

Lastly, by maintaining its $380 billion capitalization, it remains the seventh largest global base money when compared to fiat currencies. For example, the Australian Dollar (AUD) has a monetary supply of $378 billion, while the Canadian Dollar (CAD) has a monetary supply of $220 billion. The Indian Rupee, with a monetary base of $500 billion, is the next potential target.

At the moment, the options put/call ratio is stable

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 put-to-call ratio of 0.70 indicates that put option open interest lags behind the more call options and is therefore bullish. In contrast, a 1.40 indicator favors put options, which is a bearish sign.

*BTC options volume put-to-call ratio. Source: laevitas.ch*

Since March 8th, protective puts have been in greater demand, indicating derivatives traders’ risk aversion. Aside from a brief overshoot on March 9 when the put-to-call ratio jumped above 1.50, nothing was out of the ordinary as the movement coincided with the Bitcoin price falling below $22,000.

The gap favoring the put options risk metric had been narrowing, indicating that even professional traders were finding themselves shorthanded as the crypto market continued to fall to new lows.

More importantly, the Bitcoin options market shows no signs of stress, which is encouraging given the immense pressure from the banking sector and the prospects of a dwindling economy.

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 bulls’ desire for a trend reversal could be obliterated by this week’s $565M options expiry

Significant headwinds continue to batter BTC, and this week’s options expiry is unlikely to provide any relief.

Bitcoin (BTC) fell below a four-day narrow trading range near $22,400 on March 7 following comments by United States Federal Reserve Chair Jerome Powell before the Senate Banking Committee. During the congressional appearance, the Fed chairman warned that he bank is prepared to tame inflation by pushing for more significant interest rate increases.

Powell added that “the ultimate level of interest rates is likely to be higher than previously anticipated” and that recent economic data was “stronger than expected.” These remarks significantly increased investors’ expectations of a 50 basis point interest rate hike on March 22, putting pressure on risk assets such as stocks, commodities and Bitcoin.

That movement could explain why the $565 million Bitcoin weekly options expiry on March 10 will almost certainly favor bears. Nonetheless, additional negative crypto market events might have also played a significant role.

Bitcoin from the Silk Road and Mt. Gox are on the move

The movement of multiple wallets linked to U.S. law enforcement seizures on March 8 added to the price pressure on Bitcoin investors. Over 50,000 Bitcoin worth $1.1 billion were transferred, according to data shared by on-chain analytics firm PeckShield.

Furthermore, 9,860 BTC were sent to Coinbase, raising concerns about the coins being sold on the open market. These wallets are directly linked to the former Silk Road darknet marketplace and were seized by law enforcement in November 2021.

Mt. Gox creditors have until March 10 to register and choose a method of compensation repayment. The movement is part of the 2018 rehabilitation plan, and creditors must choose between “early lump sum payment” and “final payment.”

It is unclear when creditors can expect to be paid in cryptocurrency or fiat currency, but estimates indicate that the final settlement could take several years.

As a result, Bitcoin’s price drop to $22,000 on March 8 effectively confirmed bears’ advantage on the March 10 options expiry.

Bulls placed far more bets, but most will be worthless

The March 10 options expiry has $565 million in open interest, but the actual figure will be lower because bulls have concentrated their bets on Bitcoin trading above $23,000.

*Bitcoin options aggregate open interest for March 10. Source: CoinGlass*

The 1.63 call-to-put ratio reflects the disparity in open interest between the $350 million call (buy) options and the $215 million put (sell) options. However, the expected outcome is likely to be much lower, as bulls were caught off guard when Bitcoin fell below $23,000 on March 3.

For example, if the price of Bitcoin remains near $22,100 at 8:00 am UTC on March 10, only $6 million in call (buy) options will be available. This difference occurs because the right to purchase Bitcoin at $22,500 or $24,000 is rendered null if BTC trades below that level on expiry.

The most likely outcomes favor bears by a wide margin

Below are the four most likely scenarios based on the current price action. The number of options contracts available on March 10 for call (bull) and put (bear) instruments varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $20,000 and $21,000: 0 calls vs. 7,200 puts. The net result favors the put (bear) instruments by $150 million.
Between $21,000 and $22,000: 100 calls vs. 5,000 puts. The net result favors the put (bear) instruments by $105 million.
Between $22,000 and $23,000: 1,400 calls vs. 1,900 puts. Bears have a modest advantage, profiting some $55 million.
Between $23,000 and $24,000: 4,600 calls vs. 600 puts. The net result favors the call (bull) instruments by $95 million.

This rough estimate takes into account only call options in bullish bets and put options in neutral-to-bearish trades. Nonetheless, this oversimplification excludes more complex investment strategies.

A trader, for example, could have sold a call option, effectively gaining negative exposure to Bitcoin above a certain price, but there is no easy way to estimate this effect.

To turn the tables and secure a potential $95 million profit, Bitcoin bulls must push the price above $23,000 on March 10. However, given the negative macroeconomic pressure and the FUD emanating from Mt. Gox and Silk Road, the odds favor bears in this week’s options expiry.

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.

Fed signals a sharp rate hike in March due to inflation — Here’s how Bitcoin traders can prepare

The U.S. Federal Reserve is set to roll out a fresh interest rate hike on March 22, and options traders could use this risk-averse strategy to generate profits.

Like it or not, for crypto investors, the U.S. Federal Reserve policy on interest rate hikes and high inflation is the single most relevant measure for gauging demand for risk assets. By increasing the cost of capital, the Fed boosts the profitability of fixed-income instruments, but this is detrimental to the stock market, real estate, commodities and cryptocurrencies.

One positive aspect of the Fed’s meetings is that they are scheduled well in advance, so Bitcoin (BTC) traders can prepare for those. Federal Reserve policy decisions historically cause extreme intraday volatility in risk assets, but traders can use derivatives instruments to yield optimal results as the Fed adjusts interest rates.

Another challenge for traders is they face pressure from Bitcoin being highly correlated to equities. For example, the 50-day correlation coefficient versus the S&P 500 futures has been running above 70% since Feb. 7. Although it does not state cause and consequence, it is evident that cryptocurrency investors are waiting for the direction of traditional markets.

It’s also possible that Bitcoin’s low emissions could prove to be a benefit as investors realize that the Fed is running out of options to curb inflation. By raising interest rates even further, it could cause the U.S. government’s debt repayments to spiral out of control and eventually surpass $1 trillion annually. This creates a huge incentive for Bitcoin bulls, but extreme caution is needed by those willing to make trades based on interest rate hikes.

Risk takers could benefit from buying Bitcoin futures contracts to leverage their positions, but they could also be liquidated if a sudden negative price move occurs ahead of the Fed’s decision on March 22. For this reason, pro traders are more likely to opt for options trading strategies such as the skewed iron condor.

A balanced risk approach to using call options

By trading multiple call (buy) options for the same expiry date, traders can achieve gains 3 times higher than the potential loss. This options strategy allows a trader to profit from the upside while limiting losses.

It is important to remember that all options have a set expiry date, so Bitcoin’s price increase must happen during the set period.

Listed below are the expected returns using Bitcoin options for the March 31 expiry, but this methodology can also be applied to different time frames. While the costs will vary, the general efficiency will not be affected.

*Profit / Loss estimate. Source: Deribit Position Builder*

The call option gives the buyer the right to acquire an asset, but the contract seller receives (potential) negative exposure. The iron condor consists of selling the call and put options at the same expiry price and date.

As shown above, the target profit area is above $23,800, and the worst scenario is a 0.217 BTC (or $5,156 at current prices) if the expiry price on March 31 happens below $23,000.

To initiate the trade, the investor must buy 6.2 contracts of the $23,000 put (sell) option. Then, the buyer must sell 2.1 contracts of the $25,000 call option and another 2.2 contracts of the $27,000 call option. Next, the investor should sell 3.5 contracts of the $25,000 put (sell) option combined with 2 contracts of the $27,000 put option.

As a final step, the trader must purchase 3.9 contracts of the $29,000 call option to limit losses above the level.

This strategy yields a gain if Bitcoin trades between $23,800 and $29,000 on March 31. Net profits peak at 0.276 BTC ($6,558 at current prices) between $25,000 and $27,000, but remain above 0.135 BTC ($3,297 at current prices) if Bitcoin trades in the $24,400 and $27,950 range.

The investment required to open this skewed iron condor strategy is the maximum loss, hence 0.217 BTC or $5,156, which will happen if Bitcoin trades below $23,000 on March 31. The benefit of this strategy is the wide profit target area, yielding a better risk-to-reward outcome than leveraged futures trading, especially considering the limited downside.

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 price action and derivatives data confirm bears are currently in control

Investors are unwilling to add long positions, as the Shanghai fork is expected to unlock a significant amount of ETH over a short period.

The price of Ether (ETH) declined 6% between March 2 and 3, followed by tight-range trading near $1,560. Still, analyzing a wider time frame provides no clear trend, as its chart can point to a descending channel or a slightly longer seven-week bullish pattern.

*Ether (ETH) price index in USD, 1-day. Source: TradingView*

Ether’s recent lack of volatility can be partially explained by the upcoming Shanghai hard fork, an implementation aimed at allowing ETH staking withdrawals. Those participants were each required to lock 32 ETH on the Beacon Chain to support the network consensus protocol.

After a series of delays, typical for changes in the production environment, the Shanghai Capella upgrade — also known as Shapella — is expected for early April, according to Ethereum core developer and project coordinator Tim Beiko. The Goerli testnet upgrade on March 14 will be the final rehearsal for the Shanghai hard fork before it is rolled out on the mainnet.

Recession risks increase, favoring ETH bears

On the macroeconomic front, United States Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee on March 7. Powell stated that interest rates will likely rise higher than anticipated after “the latest economic data have come in stronger than expected.”

Evidence points to the Fed lagging behind the inflation curve, boosting the odds of harder-than-expected interest rate increases and asset sales by the monetary authority. For instance, an inflation “surprise” index from Citigroup rose in February for the first time in more than 12 months.

For risk assets, including cryptocurrencies, a more substantial move by the Fed typically implies a bearish scenario, as investors seek shelter in fixed income and the U.S. dollar. This shift becomes more pronounced in a recessionary environment, which many speculate is either coming or already here.

The regulatory environment is adding additional pressure for cryptocurrency firms, especially after U.S. Press Secretary Karine Jean-Pierre said the White House has noted that the crypto-friendly bank Silvergate had “experienced significant issues” in recent months.

Let’s look at Ether derivatives data to understand if the $1,560 level is likely to become a support or resistance.

ETH derivatives show reduced demand for longs

The annualized three-month futures premium should trade between 5% and 10% in healthy markets to cover costs and associated risks. However, when the contract trades at a discount (known as “backwardation”) versus traditional spot markets, it shows a lack of confidence from traders and is deemed a bearish indicator.

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

The chart above shows that derivatives traders became slightly uncomfortable as the Ether futures premium (on average) moved to 3.1% on March 7, down from 4.9% one week prior. More importantly, the indicator became more distant from the 5% neutral-to-bullish mark.

Still, the declining demand for leverage longs (bulls) does not necessarily translate to an expectation of adverse price action. Consequently, traders should analyze Ether’s options markets to understand how whales and market makers are pricing the odds of future price movements.

The 25% delta skew is a telling sign th 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 metric below -10%, meaning the bearish put options are in less demand.

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

The delta skew moved above the bearish 10% threshold on March 4, signaling stress from professional traders. A brief improvement happened on March 7, although the metric continues to flirt with bearish expectations as options traders place higher costs on protective put options.

Investors basing their decisions on fundamentals will likely look to the first couple of weeks following the Shanghai upgrade to measure the potential impact of the ETH unlock. Ultimately, options and futures markets signal that pro traders are less inclined to add long positions, giving higher odds for $1,560 becoming a resistance level in the coming weeks.

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.

Key Bitcoin price metrics point to BTC downside below $22.5K

BTC’s $1,420 decline in the span of an hour negatively impacted demand for stablecoins in Asia and shifted futures traders into a more defensive attitude.

Bitcoin (BTC) faced a one-hour $1,420 pullback on March 3 following Silvergate Bank’s 57.7% stock crash, which was due to significant losses and “suboptimal capitalization.” The U.S. fintech-friendly bank was a key financial infrastructure provider for exchanges, institutional investors and mining companies, and some investors are worried that its potential demise could have wide-ranging negative impacts on the crypto sector.

The crypto-friendly bank discontinued its digital asset payment railway — Silvergate Exchange Network — citing excessive risks. Silvergate also reportedly borrowed $3.6 billion from the U.S. Federal Home Loan Banks System, a consortium of regional banks and lenders, to mitigate the effects of a surge in withdrawals.

Among the impacted exchanges was Dubai-based Bybit, which announced the suspension of U.S. dollar transfers after March 10. The move follows Binance’s international platform, which suspends U.S. dollar fiat withdrawals and deposits on Feb. 6.

Fiat on- and off-ramps have always been troublesome areas due to the lack of a clear regulatory environment, especially in the United States. Additional uncertainty came from The Wall Street Journal’s March 3 report on iFinex, the holding company behind Tether and Bitfinex. Leaked documents and emails revealed the group reportedly relied on fake sales invoices and hid behind third parties to open bank accounts.

Despite a Wall Street Journal report alleging that Tether is being investigated by the Department of Justice, USDT (USDT) is still the absolute leading stablecoin, with a $71.4 billion market capitalization. The issue has spread across the industry as Paxos, the issuer of the third-largest stablecoin, was ordered by the New York Department of Financial Services on Feb. 13 to stop issuing Binance USD (BUSD).

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

Derivatives metrics show buyers’ shrinking appetite

Traders should refer to the USD Coin (USDC) premium to measure the demand for cryptocurrency in Asia. The index measures the difference between China-based peer-to-peer stablecoin trades and the U.S. dollar.

Excessive cryptocurrency buying demand can pressure the indicator above fair value at 104%. On the other hand, the stablecoin’s market offer is flooded during bearish markets, causing a 4% or higher discount.

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

The USDC premium indicator in Asian markets has been slightly positive for the past three weeks, but it is nowhere near the substantial 4% premium from early January. In addition, the metric shows weakening demand for stablecoins in Asia, down from 2.5% in the previous week.

Still, the present 1.5% premium should be interpreted as positive considering the bearish newsflow regarding crypto-fiat payment railways.

Bitcoin’s quarterly futures are the preferred instruments of whales and arbitrage desks. These fixed-month contracts usually trade at a slight premium to spot markets, indicating that sellers are requesting more money to withhold settlement longer.

Consequently, futures contracts should trade at a 5%–10% annualized premium in healthy markets. This situation is known as “contango” and is not exclusive to crypto markets.

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

The chart shows that traders abandoned any prospects of exiting the neutral-to-bearish area on March 3 as the basis indicator moved away from the 5% threshold. However, the current 3% premium is lower than last week’s 4.5%, reflecting fewer investors’ optimism.

On the bright side, the 6.2% drop in BTC price had a near uneventful impact on Bitcoin futures markets. Higher demand for bearish bets using leverage would have moved the basis indicator to the negative area, known as “backwardation.”

Additional volatility is expected on March 14

In the week following Feb. 27, Bitcoin’s price lost 4.5%, indicating that investors are effectively worried about contagion from Silvergate Bank. Even though crypto exchanges and stablecoin providers have denied exposure to the troubled fintech firm, the cut-off from its payment processing system has raised uncertainty.

Analysts are now focused on the announcement of the Consumer Price Index (CPI) inflation data on March 14. As Cointelegraph noted, CPI prints tend to spark short-term volatility across risk assets, although often short-lived in Bitcoin’s price movements.

Derivatives metrics currently point to limited pressure from the Silvergate Bank saga, but the odds favor Bitcoin bears, considering the diminishing demand for stablecoins in Asia and the BTC futures premium.

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 price searches for direction ahead of this week’s $710M BTC options expiry

BTC’s recent price swings are the result of regulatory pressure and the Federal Reserve’s stance on U.S. inflation.

Bitcoin (BTC) bulls laid most of their options at $24,500 and higher for the March 3 options expiry, and given the recent bullishness seen from BTC, who can blame them? On Feb. 21, Bitcoin’s price briefly traded above $25,200, reflecting an 18% gain in eight days. Unfortunately, regulatory pressure on the crypto sector increased, and despite no effective measures being announced, investors are still wary and reactive to remarks from policymakers.

For instance, on Feb. 23, U.S. Securities and Exchange Commission Chair Gary Gensler claimed that “everything other than Bitcoin” falls under the agency’s jurisdiction. Gensler noted that most crypto projects “are securities because there’s a group in the middle and the public is anticipating profits based on that group.”

March 1 comments from two U.S. Federal Reserve officials reiterated the necessity for even more aggressive interest rate increases to curb inflation. Minneapolis Fed President Neel Kashkari’s and Atlanta Fed President Raphael Bostic’s comments also decreased investors’ expectations of a monetary policy reversal happening in 2023.

The stricter stance from the macroeconomic and crypto regulatory environment caused investors to rethink their exposure to cryptocurrencies. Nevertheless, Bitcoin’s price decline practically extinguished bulls’ expectation for a $24,500 or higher options expiry on March 3, so their bets are unlikely to pay off as the deadline approaches.

Bulls were “rug pulled” by negative regulatory remarks

The open interest for the March 3 options expiry is $710 million, but the actual figure will be lower since bulls became overconfident after Bitcoin traded above $25,000 on Feb. 21.

*Bitcoin options aggregate open interest for March 3. Source: CoinGlass*

The 1.12 call-to-put ratio reflects the imbalance between the $400 million call (buy) open interest and the $310 million put (sell) options. However, the expected outcome is likely much lower regarding active open interest.

For example, if Bitcoin’s price remains near $23,600 at 8:00 am UTC on March 3, only $50 million worth of these call (buy) options will be available. This difference happens because the right to buy Bitcoin at $24,000 or $25,000 is useless if BTC trades below that level on expiry.

Bears have set their trap below $23,000

Below are the four most likely scenarios based on the current price action. The number of options contracts available on March 3 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $22,000 and $22,500: 700 calls vs. 6,200 puts. The net result favors the put (bear) instruments by $120 million.
Between $22,500 and $23,000: 1,000 calls vs. 4,800 puts. The net result favors the put (bear) instruments by $85 million.
Between $23,000 and $24,000: 2,100 calls vs. 1,800 puts. The net result is balanced between bulls and bears.
Between $24,000 and $25,000: 4,900 calls vs. 400 puts. The net result favors the call (bull) instruments by $110 million.

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

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.

Could weak U.S. mortgage applications could benefit BTC bulls?

Bitcoin bulls must push the price above $24,000 on March 3 to secure a potential $110 million profit. However, data from an announcement from the Mortgage Bankers Association on March 1 might turn the tide favorably for BTC. The weekly volume of mortgage applications declined by 44% versus the same period in 2022, hitting the lowest level in 28 years.

Considering the negative pressure from regulators and investors’ eying the next Fed decision on March 22, bears have good odds of pressuring BTC below $23,000 and profiting by $85 million in the March 3 weekly options expiry. Still, there’s hope for Bitcoin bulls depending on how traditional markets react to the bearish mortgage applications data.

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.

Bitcoin price continues to fall, but derivatives data hints at a short-term rally to $25K

This week regulators joined hands to highlight the crypto sector’s inherent risk, but pro traders fought back by adding leverage to their long positions.

It’s possible that many people have already forgotten that Bitcoin’s (BTC) price closed 2022 at $16,529 and the recent rebound and rejection at the $25,000 level could raise concern among certain investors. Bears are pushing back at the $25,000 level and there has been multiple failed attempts at the level between Feb. 16 and Feb. 21. Currently, it looks like the $23,500 resistance is continuing to gain strength with every retest.

Pinpointing the rationale behind Bitcoin’s 45.5% year-to-date gain is not apparent, but part of it comes from the United States Federal Reserve’s inability to curb inflation while raising interest rates to its highest level in 15 years. The unintended consequence is higher government debt repayments and this adds further pressure to the budget deficit.

It’s virtually impossible to predict when the Fed will change its stance, but as the debt to gross domestic product ratio surpasses 128, it should not take longer than 18 months. At some point, the value of the U.S. dollar itself could become endangered due to extreme debt leverage.

On Feb. 23, the Fed, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a joint statement encouraging U.S. banks that rely on funding from the crypto sector to prevent liquidity runs by maintaining strong risk management practices. Regulators said the report was spurred by “recent events” in the industry due to increased volatility risks.

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

Bitcoin margined longs were used to defend the $24,000 level

Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions.

For example, one can increase exposure by borrowing stablecoins to buy (long) Bitcoin. On the other hand, Bitcoin borrowers can only bet against (short) the cryptocurrency. Unlike futures contracts, the balance between margin longs and shorts isn’t always matched.

*OKX stablecoin/BTC margin lending ratio. Source: OKX*

The above chart shows that OKX traders’ margin lending ratio increased between Feb. 21 and Feb. 23, signaling that professional traders added leverage long positions as Bitcoin price broke below $24,000.

One might argue that the excessive demand for bullish margin positioning seems a desperate move after the failed attempt to break the $25,000 resistance on Feb. 21. However, the unusually high stablecoin/BTC margin lending ratio tends to normalize after traders deposit additional collateral after a few days.

Options traders are more confident with downside risks

Traders should also analyze options markets to understand whether the recent rally has caused investors to become more risk-averse. The 25% delta skew is a telling sign whenever arbitrage desks and market makers overcharge for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put options premium is higher than risk call options.

In short, the skew metric will move above 10% if traders fear a Bitcoin price crash. On the other hand, generalized excitement reflects a negative 10% skew.

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

Notice that the 25% delta skew shifted slightly negative since Feb. 18 after option traders became more confident and the $23,500 support strengthened. A skew reading at -5% denotes a balanced demand between bullish and bearish option instruments.

Derivatives data paints an unusual combination of excessive margin demand for longs and a neutral risk assessment from options traders. Yet, there is nothing concerning about it as long as the stablecoin/BTC ratio returns to levels below 30 in the coming days.

Considering regulators have been applying enormous pressure on the crypto sector, Bitcoin derivatives are holding up nicely. For example, on Feb. 22, the Bank for International Settlements general manager Agustín Carstens emphasized the need for regulation and risk management in the crypto space. The limited impact of the BIS statement on the price is a bullish sign and it possibly increases the odds of Bitcoin price breaking above $25,000 in the short-term.

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.

Bitcoin bears attempt to pin BTC price under $23K ahead of this month’s options expiry

$1.9 billion in BTC options are set to expire on Feb. 24, and bulls are well positioned to profit despite the Federal Reserve’s intention to cool off the U.S. economy.

Bitcoin’s (BTC) 16% price gain between Feb. 13 and Feb. 16 practically extinguished the bears’ expectation for a monthly options expiry below $21,500. As a result of the abrupt rally, these bearish bets are unlikely to pay off, especially since the expiry occurs on Feb. 24. However, bulls were not counting on the strong price rejection at $25,200 on Feb. 21, and this reduces their odds of securing a $480 million profit in this month’s BTC options expiry.

Bitcoin investors’ primary concern is a stricter monetary policy as the U.S. Federal Reserve increases interest rates and reduces its $8 trillion balance sheet. Feb. 22 minutes from the latest Federal Open Market Committee meeting showed that members were in consensus on the most recent 25 basis point rate hike and that the Fed is willing to continue raising rates as long as deemed necessary.

St. Louis Fed President James Bullard told CNBC on Feb. 22 that a more aggressive interest rate hike would give them a better chance to contain inflation. Bullard said:

“Let’s be sharp now, let’s get inflation under control in 2023.”

If confirmed, the increased interest rate pace would be negative for risk assets, including Bitcoin, as it draws more profitability for fixed-income investments.

Even if the newsflow remains negative, bulls still can profit up to $480 million in Friday’s monthly options expiry. However, bears can still significantly improve their situation by pushing the BTC price below $23,000.

Bears were not expecting Bitcoin to hold $22,000

The open interest for the Feb. 24 monthly options expiry is $1.91 billion, but the actual figure will be lower since bears expected prices below $23,000. Nevertheless, these traders were surprised as Bitcoin gained 13.5% between Feb. 15 and Feb. 16.

*Bitcoin options aggregate open interest for Feb. 24. Source: CoinGlass*

The 1.55 call-to-put ratio reflects the imbalance between the $1.16 billion call (buy) open interest and the $750 million put (sell) options. If Bitcoin’s price remains near $24,000 at 8:00 am UTC on Feb. 24, only $125 million worth of these put (sell) options will be available. This difference happens because the right to sell Bitcoin at $22,000 or $23,000 is useless if BTC trades above that level on expiry.

Bulls aim for $23,000 to secure a $155 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Feb. 17 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes these theoretical profits:

Between $22,500 and $23,000: 12,500 calls vs. 10,700 puts. The net result favors the call (bull) instruments by $40 million.
Between $23,000 and $24,000: 16,200 calls vs. 7,600 puts. The net result favors the call (bull) instruments by $200 million.
Between $24,000 and $24,500: 21,100 calls vs. 5,200 puts. Bulls increase their advantage to $385 million.
Between $24,500 and $25,000: 23,200 calls vs. 3,600 puts. Bulls dominate by profiting $480 million.

For example, a trader could have sold a call option, effectively gaining inverse exposure to Bitcoin above a specific price, but unfortunately there’s no easy way to estimate this effect.

The Fed’s tightening policy is the bears’ best shot

Bitcoin bulls must push the price above $24,500 on Feb. 24 to secure a potential $480 million profit. On the other hand, the bears’ best-case scenario requires a 3.5% price dump below $23,000 to minimize their losses.

Considering the negative pressure from the Fed’s desire to weaken the economy and contain inflation, bears have good odds of improving their situation and settling with a $40 million loss on Feb. 24. This movement might not be successful, but it is the bears’ only way out of multi-million losses on the BTC monthly options expiry.

Looking at a broader time frame, investors still believe the Fed is destined to reverse the current monetary policy in the second half of 2023 — possibly paving the way for a sustainable rally ahead of the April 2024 Bitcoin block reward halving.

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 data suggests $1,700 might not remain a resistance level for long

ETH derivatives data shows bullish traders becoming more comfortable with the $1,700 price level, creating an opportunity for further rallies.

The price of Ether (ETH) rallied 18% between Feb. 13 and Feb. 16 but has since been range trading near the $1,700 level. Despite the recent price improvement, Ether derivatives metrics remain neutral-to-bullish as investors ponder the tighter regulatory environment and the potential impact of Ethereum’s Shanghai upgrade.

Investors’ biggest concern right now is regulation, especially after the United Kingdom’s Financial Stability Board recently stated that most stablecoins fail to meet international standards. The FSB was created by the G20 and is affiliated with the Bank of International Settlements. FSB chair Klaas Knot stated that the appropriate regulation of crypto-assets should be “based on the principle of same activity, same risk, same regulation.”

In more positive news, there has been some improvement in China after the government is reportedly taking a softer approach to Hong Kong’s crypto hub aspirations. According to a Feb. 20 Bloomberg report, representatives from China have been frequenting Hong Kong crypto gatherings seeking to understand local crypto business operations.

A recent Binance report detailed the status of Ether staking and explored why the Shanghai upgrade may not result in the ETH sell pressure that some traders have predicted. Their rationale is based on liquid staking derivatives, which allow users to benefit from staked Ether while retaining the ability to sell the derivative token.

Let’s look at Ether derivatives data to understand if the $1,700 price rejection has impacted crypto investors’ sentiment.

ETH futures show higher demand for leverage longs

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

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

The chart above shows that derivatives traders are no longer neutral-to-bearish after the Ether futures premium exceeded the 4% threshold. More importantly, it shows resilience even as ETH failed to sustain the $1,700 support on Feb. 21.

The lessened demand for leverage shorts (bears) does not necessarily translate to an expectation of positive price action. Traders should analyze Ether’s options markets to understand how whales and market makers are pricing the odds of future price movements.

Options risk metrics move away from bearish sentiment

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

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

The delta skew flirted with the bearish 10% level on Feb. 14, signaling stress from professional traders. However, the situation improved through the week as the index moved close to 0 — indicating similar upside and downside risk appetite.

Currently, options and futures markets point to pro traders moving to a neutral-to-bullish sentiment, displaying higher odds of ETH breaking above the $1,700 resistance. Consequently, the odds favor Ether bulls as investors remained calm despite the regulatory pressure and negative emotions associated with the upcoming Shanghai upgrade.

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.

Bitcoin bulls aim to hold this week’s BTC gains leading into Friday’s $675M options expiry

$675 million in BTC options are set to expire on Feb. 17, but bears could aim to take control by pushing Bitcoin’s price below $22,000.

The price of Bitcoin (BTC) gained 6.3% just two days after reaching $21,370 on Feb. 13, which was the lowest level seen in more than three weeks. The price recovery can be partially explained by the Feb. 14 U.S. Consumer Price Index data displaying a 6.4% increase in year-over-year inflation in January.

While the U.S. Federal Reserve continues to monitor the overheated economy, the most likely scenario is further interest rate hikes to curb inflation. The unintended consequence is the heightened government debt cost, creating a bullish environment for scarce assets such as commodities, stock market and cryptocurrencies.

The price gain of Bitcoin practically extinguished bears’ expectation for a sub-$21,500 options expiry on Feb. 17, so their bets are unlikely to pay off as the deadline approaches.

Bitcoin investors’ primary concern is the possibility of further impacts from regulators following the U.S. Securities and Exchange Commission ordering Kraken to halt its staking rewards program on Feb. 9 and the crackdown on Binance USD (BUSD) stablecoin issuing on Feb. 13.

Even if the newsflow remains negative, bulls still can profit from Feb. 17’s options expiry by keeping the BTC price above $22,500, but the situation can easily flip and favor bears.

Bears were not expecting the $22,000 level to hold

The open interest for the Feb. 17 options expiry is $675 million, but the actual figure will be lower since bears were expecting sub-$22,000 price levels. These traders became overconfident after Bitcoin traded below $21,500 on Feb. 13.

*Bitcoin options aggregate open interest for Feb. 17. Source: CoinGlass*

The 1.12 call-to-put ratio reflects the imbalance between the $355 million call (buy) open interest and the $320 million put (sell) options. If Bitcoin’s price remains near $22,700 at 8:00 am UTC on Feb. 17, only $24 million worth of these put (sell) options will be available. This difference happens because the right to sell Bitcoin at $21,000 or $22,000 is useless if BTC trades above that level on expiry.

Bulls aim for $23,000 to secure a $155 million profit

Between $21,000 and $22,000: 700 calls vs. 5,500 puts. The net result favors the put (bear) instruments by $100 million.
Between $22,000 and $22,500: 1,800 calls vs. 1,500 puts. The net result is balanced between bears and bulls.
Between $22,500 and $23,000: 3,800 calls vs. 1,100 puts. The net result favors the call (bull) instruments by $60 million.
Between $23,000 and $24,000: 6,900 calls vs. 200 puts. The net result favors the call (bull) instruments by $155 million.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately, there’s no easy way to estimate this effect.

Bears might benefit from the impact of regulation

Bitcoin bulls need to push the price above $23,000 on Feb. 17 to secure a potential $155 million profit. On the other hand, the bears’ best-case scenario requires a 3.5% dump below $22,000 to maximize their gains.

Considering the negative pressure from regulators, bears have good odds of flipping the table and avoiding a loss of $60 million or larger on Feb. 17.

More importantly, looking at a broader time frame, there is little room for the Fed to slow down the economy without spiraling the debt interest repayments out of control.

Feb. 17 will be an interesting display of strength between the short-term impact of a hostile crypto regulation environment versus Bitcoin’s long-term scarcity and censorship-resistance benefits.

Bitcoin (BTC) price gained 6.3% just two days after reaching $21,370 on Feb. 13, which was the lowest level seen in more than three weeks. The price recovery can be partially explained by the Feb. 14 U.S. Consumer price index data displaying a 6.4% increase in year-over-year inflation in January.

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.