Options

Bitcoin pro traders warm up the $24K level, suggesting that the current BTC rally has legs

The Fed’s interest hike matched the market consensus and weak employment data boosted investors’ appetite for risk assets, but BTC traders should still exercise caution.

On Feb. 1 and Feb 2. Bitcoin’s (BTC) price surpassed even the most bullish price projections after the U.S. Federal Reserve announced plans to raise interest rates by 25 basis points.

Even though Fed chair Jerome Powell told investors not to wait for interest rate cuts in 2023, during his press conference he did clearly state that the employment data is currently the main focus.

The results of the ADP payroll survey revealed on Feb. 1 that U.S. private-sector hiring was significantly slower in January. ADP’s measure of private sector payrolls was 106,000, well below the 160,000 market consensus. This data fueled investors’ expectations of future interest rate hikes by the Fed going forward.

After testing the $22,500 support on Feb. 1, Bitcoin gained 6.5% in five hours and has since been flirting with the $24,000 level. While the recent gains are exciting, traders should note that the improvement in crypto market sentiment tracked the risk-on attitude seen in traditional markets.

Stocks with negative operating margin presented significant gains on Feb. 2, including Coinbase (COIN) 20%, Cloudflare (NET) 15%, Unity Software (U) 12% and DoorDash (DASH) 10%. That factor alone should be a warning sign that the gains of the last few weeks might not be sustainable. It’s also important to remember that Bitcoin’s 40-day correlation to the S&P 500 remains above 75%.

Potential regulatory headwinds could also have played a vital role in supporting Bitcoin’s upside. Huang Yiping, a former member of the Monetary Policy Committee at the People’s Bank of China, recently argued that a permanent ban on crypto could result in many missed opportunities.

Huang, now an economics professor at Peking University’s National School of Development, criticized Bitcoin for lacking intrinsic value, but noted that crypto-related technologies are “very valuable” to regulated financial systems.

Let’s look at derivatives metrics to understand whether professional traders added leverage positions after Bitcoin’s recent price breakout.

Bitcoin margin traders warm up to the $22,500 support

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 Bitcoin. On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet on its price declining. 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 drastically increased on Jan. 30, signaling that professional traders added leverage long after Bitcoin successfully bounced after testing the $22,500 support.

More importantly, Jan. 29 marked the indicator’s lowest level in more than eleven weeks at 13 favoring stablecoin borrowing by a wide margin — indicating that shorts are not confident about building bearish leveraged positions. At 24 at the time of writing, it is clearly evident that bulls are becoming more comfortable with the current $22,500 support.

Options traders flirt with an optimistic bias

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 are overcharging 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 60-day options 25% delta skew: Source: Laevitas*

The 25% delta skew has been relatively calm near negative 5, indicating similar odds for downside and upside from options traders. On the bright side, not even the $22,500 retest on Jan. 31 was enough to break the bulls’ spirit. Combined with the lack of demand from margin traders willing to short Bitcoin, the derivatives markets paint a bullish picture.

Even if it takes a little longer (perhaps a couple of days) to break above $24,000, there are no signs of stress coming from the Bitcoin margin and options markets. However, traditional markets continue to play a vital role in setting the trend, so Bitcoin investors should not become overconfident.

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 (ETH) price is aiming for $1,800 in February — Here is why

ETH price is finding support at $1,560 and multiple data points are beginning to hint at a possible rally to $1,800 before the end of February.

Ether (ETH) has been struggling with the $1,680 resistance since Jan. 20. Still, the ascending triangle pattern and improvements in investor sentiment in ETH derivatives provides hope that Ether price could reach $1,800 or higher by the end of February. This, of course, depends on how the Ether price behaves as it reaches the pattern deadline by mid-February.

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

From one side, traders are relieved that Ether is trading up 33% year-to-date, but the repeated failures to break the $1,680 resistance coupled with negative newsflow might give bears the power to cancel the bullish triangle pattern.

According to a Jan. 30 report from Axios, New York State’s Department of Financial Services is reportedly investigating cryptocurrency exchange Gemini over claims that the firm made regarding assets in its Earn lending program. The suspicions followed reports that multiple Gemini Earn users believed their assets had been protected by the Federal Deposit Insurance Corporation (FDIC).

On Jan. 12, the U.S. Securities and Exchange Commission charged the Gemini exchange with offering unregistered securities through Earn. In addition, Gemini co-founder Cameron Winklevoss has claimed that Genesis and DCG owe $900 million to Gemini’s clients.

Several United States senators have reportedly penned a letter requesting answers from Silvergate Bank, according to a Jan. 31 Bloomberg report. The policymakers were not fully satisfied with the bank’s previous answers about its alleged role in handling FTX user funds. Silvergate reportedly cited restrictions on disclosing “confidential supervisory information.”

On the bright side, Ethereum Foundation developer Parithosh Jayanthi announced that the “Zhejiang” public testnet will be launched on Feb. 1. The implementation will allow staked Ether withdrawal on a test environment so that validators can anticipate the proposed changes for the Shanghai hard fork.

Let’s look at Ether derivatives data to understand if pro traders are frustrated by the recent price rejection at the $1,680 level.

ETH’s futures premium has failed to enter the FOMO area

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

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

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

The above chart shows that traders using future contracts have failed to enter the neutral-to-bullish 4% threshold. Still, the current 3.5% premium denotes a moderate sentiment improvement compared to two weeks prior, but that does not mean traders expect an immediate positive price action.

For this reason, traders should analyze Ether’s options markets to understand how whales and market makers are pricing the odds of future price movements.

Options traders are comfortable with downside risk

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

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to drive the skew indicator below -10%, meaning the bearish put options are discounted.

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

The delta skew has stabilized near 0% in the last two weeks, signaling that Ether options traders held a neutral sentiment. That is particularly intriguing since ETH gained 10% on Jan. 20 — indicating pro traders are pricing similar upside and downside risks.

Ultimately, both options and futures markets point to whales and market makers not comfortable with adding leverage longs, but at the same time, not worried if the $1,570 ascending channel support breaks.

Traders will watch to see if Ether bulls are able to keep the price within the bullish triangle formation for the next two weeks, but if the macroeconomic environment allows, ETH derivatives point to a potential rally toward $1,800.

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 plan to flip $23K to support by aiming to win this week’s $1B options expiry

BTC bulls are positioned to win this week’s $1 billion options expiry, but the market’s post-FOMC reaction could alter their plans.

Bitcoin’s (BTC) price has been trading above $22,500 for 12 days. Of course, this situation can change even if Federal Reserve chair Jerome Powell issues positive statements about the economy in today’s post-FOMC presser.

Even if the decision matches the market consensus, the post-meeting statement should be investors’ primary area of focus. Specific areas to focus on would be clues for the next meeting in March.

Troubling news for the largest stablecoin Tether (USDT) could also cause a meaningful impact after a Celsius bankruptcy examiner report showed that “Tether’s exposure eventually grew to over $2 billion” in September 2021. However, it is unclear if iFinex — Tether’s issuer — suffered any losses. iFinex chief technology officer Paolo Ardoino denied exposure to Celsius and suggested that the examiner had “mixed up” prepositions in the report.

Is a strong correction in stock market ahead?

Legendary portfolio manager Michael Burry, known for being one of the most vocal critics of the subprime mortgage crisis from 2007 to 2008, posted a short note on Twitter on Feb. 1, suggesting that investors “sell.”

While the message lacks a supporting thesis, one could conclude that Burry expects a meaningful correction in traditional markets. Considering the 40-day correlation between Bitcoin and the S&P 500 index at 75%, the odds of a BTC price retrace become evident.

Consequently, this week’s $1 billion BTC options expiry on Feb. 3 can go either way because bears can still flip the tables even though the tide currently favors the bulls.

Bitcoin bears were caught entirely off-guard

The open interest for the Feb. 3 options expiry is $1 billion, but the actual figure will be lower since bears were caught by surprise after the 9.6% rally between Jan. 20 and Jan. 21.

*Bitcoin options aggregate open interest for Feb. 3. Source: Coinglass*

The 1.61 call-to-put ratio reflects the imbalance between the $640 million call (buy) open interest and the $400 million put (sell) options.

If Bitcoin price remains above $23,000 at 8:00 am UTC on Feb. 3, less than $7 million worth of these put (sell) options will be available. This difference occurs because the right to sell Bitcoin at $22,000 or $23,000 is useless if BTC trades above that level on expiry.

$23,000 Bitcoin would give bulls a $180 million profit

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

Between $21,000 and $22,000: 2,700 calls vs. 10,700 puts. The net result favors the put (bear) instruments by $165 million.
Between $22,000 and $23,000: 4,400 calls vs. 4,200 puts. The net result is balanced between call and put options.
Between $23,000 and $24,000: 7,800 calls vs. 100 puts. The net result favors the call (bull) instruments by $180 million.
Between $24,000 and $25,000: 12,400 calls vs. 0 puts. Bulls extend their gains to $300 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.

In essence, Bitcoin bears need to push the price below $22,000 on Feb. 3 to flip the tables and secure a $165 million profit. But, for now, bulls are well positioned to profit from the BTC weekly options expiry and use the proceeds to further defend the $23,000 support.

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

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Total crypto market cap rises above $1T, and data suggests more upside is in store

Bad news continues to dominate crypto media headlines but Bitcoin and the wider market appear to not care.

Despite the recent negative crypto and macroeconomic newsflow, the total cryptocurrency market capitalization broke above $1 trillion on Jan. 21. An encouraging sign is that derivatives metrics are not showing increased demand from bearish traders at the moment.

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

Bitcoin (BTC) price gained 8% on the week, stabilizing near the $23,100 level at 18:00 UTC on Jan. 27 as the markets weighed the potential impact of Genesis Capital’s bankruptcy on Jan. 19.

One area of concern is Genesis Capital’s largest debtor is Digital Currency Group (DCG), which happens to be its parent company. Consequently, Grayscale funds management could be at risk, so investors are unsure if the Grayscale Bitcoin Trust (GBTC) assets could face liquidation. The investment vehicle currently holds over $14 billion worth of Bitcoin positions for its holders.

A United States appeals court is set to hear the arguments relating to Grayscale Investment’s lawsuit against the Securities and Exchange Commission (SEC) on March 8. The fund manager questioned the SEC’s decision to deny their asset-backed exchange-traded fund (ETF) launch.

Regulatory concerns also negatively impacted the markets after South Korean prosecutors requested an arrest warrant for Bithumb exchange owner Kang Jong-Hyun. On Jan. 25, the Financial Investigation 2nd Division of the Seoul Southern District Prosecutor’s Office sentenced Kang and two Bithumb executives on charges of conducting fraudulent illegal transactions.

The 7% weekly increase in total market capitalization was held back by Ether’s (ETH) 0.3% negative price move. Still, the bullish sentiment significantly impacted altcoins, with 11 of the top 80 coins gaining 18% or more in the period.

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

Aptos (APT) gained 91% after the smart contract network total value locked (TVL) reached a record-high $58 million, fueled by PancakeSwap DEX.

Fantom (FTM) rallied 50% after the announcement of its new database system, Carmen, and a new Fantom Virtual Machine, Tosca.

Optimism (OP) faced 21% gains after a sharp increase in transaction volumes during an NFT incentive program called Optimism Quest.

Leverage demand slightly favors bulls

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

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

*Perpetual futures accumulated 7-day funding rate on Jan. 27. Source: Coinglass*

The 7-day funding rate was positive for Bitcoin and Ethereum, meaning the data points to slightly higher demand for leverage longs (buyers) versus shorts (sellers). Still, a 0.25% weekly funding cost is not enough to discourage leverage buyers.

Interestingly, Aptos was the only exception as the altcoin presented a negative 0.6% weekly funding cost — meaning short sellers were paying to keep their positions open. This movement can be explained by the 91% rally in 7 days and it suggests that sellers expect some sort of technical correction.

The options put/call ratio shows no signs of fear

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

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

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

Even though Bitcoin’s price failed to break the $23,300 resistance, the demand for bullish call options has exceeded the neutral-to-bear puts since Jan. 6.

Presently, the put-to-call volume ratio stands near 0.50 as the options market is more strongly populated by neutral-to-bullish strategies, favoring call (buy) options by 50%.

Derivatives markets point to further upside potential

After the third consecutive week of gains, which totals 40% year-to-date when excluding stablecoins, there are no signs of demand from short sellers. More importantly, leverage indicators show bulls are not using excessive leverage.

Derivatives markets point to further upside potential and even if the market revisits the $950 billion market capitalization from Jan. 18, there is no reason for panic. Currently, Bitcoin option markets show whales and market makers favoring the neutral-to-bullish strategies.

Ultimately, the odds favor those betting that the $1 trillion total market cap will hold, opening room for further gains.

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.

Total crypto market cap rises above $1T — data suggests more upside is in store

Bad news continues to dominate crypto media headlines, but Bitcoin and the broader market appear not to care.

Bitcoin (BTC) price gained 8% this week, stabilizing near the $23,100 level at 18:00 UTC on Jan. 27 as the markets weighed the potential impact of Genesis Global Capital’s bankruptcy on Jan. 19.

One area of concern is Genesis Capital’s largest debtor, the Digital Currency Group, its parent company. Consequently, Grayscale funds management could be at risk, with investors unsure if Grayscale Bitcoin Trust assets could face liquidation. The investment vehicle currently holds over $14 billion worth of Bitcoin positions for its holders.

Aptos (APT) gained 91% after the smart contract network total value locked reached a record-high $58 million, fueled by the PancakeSwap decentralized exchange.

Fantom (FTM) rallied 50% after the announcement of its new database system, Carmen and a new Fantom Virtual Machine, Tosca.

Optimism (OP) saw 21% gains after a sharp increase in transaction volumes during a nonfungible token incentive program called Optimism Quest.

Leverage demand slightly favors bulls

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

Interestingly, Aptos was the only exception as the altcoin presented a negative 0.6% weekly funding cost, with short sellers paying to keep their positions open. This movement can be explained by the 91% rally in seven days and it suggests that sellers expect some sort of technical correction.

The options put/call ratio shows no signs of fear

Even though Bitcoin’s price failed to break the $23,300 resistance, the demand for bullish call options has exceeded the neutral-to-bear puts since Jan. 6.

Presently, the put-to-call volume ratio stands near 0.50 as the options market is more strongly populated by neutral-to-bullish strategies, favoring call (buy) options by 50%.

Derivatives markets point to further upside potential

Derivatives markets point to further upside potential. Even if the market revisits the $950 billion market capitalization from Jan. 18, there is no reason for panic. Currently, Bitcoin option markets show whales and market makers favoring the neutral-to-bullish strategies.

Ultimately, the odds favor those betting that the $1 trillion total market cap will hold, opening room for further gains.

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.

$1.48B in Bitcoin options expire on Friday — Will BTC hold $22K?

BTC price has started to correct, and with $1.48 billion in Bitcoin options expiring on Jan. 27, traders are watching to see if the price holds above $22,000.

Bitcoin (BTC) price faced fierce resistance at $23,000 after an 11% rally on Jan. 20, but that was enough to cause $335 million in liquidations for short positions using futures contracts. The 36% year-to-date gain to $22,500 caused bears to be ill-prepared for the $1.48 billion monthly options expiry on Jan. 27.

Bitcoin investors’ sentiment improved after signals pointing to lower inflationary pressure suggested that the U.S. Federal Reserve could soon move away from its interest rate increase and quantitative tightening. Commonly known as a pivot, the trend change would benefit risk assets such as cryptocurrencies.

On Jan. 22, the China-based peer-to-peer trades of USD Coin (USDC) reached a 3.5% premium versus the United States dollar, indicating moderate FOMO by retail traders. This level is the highest in more than 6 months, suggesting excessive cryptocurrency buying demand has pressured the indicator above fair value.

The all-time high on the 7-day Bitcoin hash rate — an estimate of processing power dedicated to mining — also supported the bullish momentum. The indicator peaked at 276.9 exo-hash per second (EH/s) on Jan. 19, signaling a reversion of the recent weakness caused by miners facing financial difficulties.

Despite the bears’ best efforts, Bitcoin has been trading above $20,000 since Jan. 14 — a movement that explains why the $1.48 billion Bitcoin monthly options expiry will vastly benefit bulls despite the recent failure to break the $23,200 resistance.

Bulls were too optimistic, but remain well positioned

Bitcoin’s latest rally on Jan. 20 caught bears by surprise, as a mere 6% of the put (sell) options for the monthly expiry have been placed above $22,000. Thus, bulls are better positioned even though they set nearly 40% of their call (buy) options at $23,000 or higher.

*Bitcoin options aggregate open interest for Nov. 25. Source: CoinGlass*

A broader view using the 1.15 call-to-put ratio shows more bullish bets because the call (buy) open interest stands at $790 million against the $680 million put (sell) options. Nevertheless, most bearish bets will likely become worthless as Bitcoin is up 36% in January.

If Bitcoin’s price remains above $22,000 at 8:00 am UTC on Jan. 27, only $38 million worth of these put (sell) options will be available. This difference happens because there is no use in the right to sell Bitcoin at $21,000 or $22,000 if it trades higher on expiry.

Bears could secure a $595 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Jan. 27 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: 12,800 calls vs. 7,100 puts. The net result favors bulls by $115 million.
Between $21,000 and $22,000: 17,600 calls vs. 2,800 puts. The net result favors bulls by $320 million.
Between $22,000 and $23,000: 21,200 calls vs. 1,100 puts. Bulls remain in control, profiting $455 million.
Between $23,000 and $24,000: 25,300 calls vs. 0 puts. Bulls completely dominate the expiry, racking up $595 million.

Bitcoin bears need to push the price below $21,000 on Jan. 27 to greatly reduce their losses. However, Bitcoin bears recently had $335 million worth of liquidated leveraged short futures positions, so they likely have less margin required to exert power in the short term.

Consequently, the most probable scenario for the January monthly BTC options expiry is the $22,000 or higher level, providing a decent win for bulls.

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 futures and options data reflect investors’ growing confidence in ETH price

ETH price struggles to flip $1,700 to support, but key derivatives data show bulls making plans to break through the resistance.

The price of Ether (ETH) rallied 16% between Jan. 14 and Jan. 21, peaking at $1,680 before facing a 5.4% rejection. Curiously, the same resistance level resulted in a substantial correction in late August and again in early on Nov. 2.

*Ether/USD price index, 2-day. Source: TradingView*

From one side, traders are relieved that Ether is trading up 35.5% year-to-date, but the repeated corrections that follow retests of the $1,680 resistance may have weakened investors’ sentiment.

Negative newsflow might have limited Ether investors’ appetite after troubled cryptocurrency company Digital Currency Group (DCG) faced more legal issues this week. On Jan. 23, a group of Genesis Capital creditors filed a lawsuit alleging violations of federal securities laws. In addition, the plaintiffs allege the lending firm made false and misleading statements as part of a scheme to defraud potential and existing digital asset lenders.

Another new concern for Ether holders came on Jan. 22, after a “temperature check” proposal to deploy Uniswap v3 protocol to BNB Chain received overwhelming support from the Uniswap community. Some 80% of Uniswap’s UNI governance tokenholders have voted to deploy the additional version of the decentralized exchange protocol.

On the bright side, Ethereum developers have created a testing environment for the upcoming Shanghai network upgrade. According to Ethereum developer Marius Van Der Wijden, the testnet appears to have been created to evaluate staking withdrawals, which are currently disabled on the mainnet. Over 14.5 million ETH (worth $23 billion) has been deposited into the Ethereum staking contract, and harsh criticism followed the multiple delays in enabling withdrawals.

Let’s look at Ether derivatives data to understand if the $1,680 price rejection has impacted crypto investor sentiment.

ETH futures finally enter the neutral area

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

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

The above chart shows that derivatives traders are no longer bearish because the Ether futures premium reached the 4% threshold for neutral markets. So, bulls can celebrate that the indicator shifted to a modest premium, but that does not mean traders expect the immediate result of positive price action.

For this reason, traders should analyze Ether’s options markets to understand how whales and market makers are pricing the odds of future price movements.

Options traders are comfortable with downside risk

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

The delta skew has stabilized near 0% in the past week, signaling that Ether options traders are presenting a neutral sentiment. That is a stark contrast from the end of 2022 when the 25% skew index hovered near 18% — indicating a lack of comfort in taking downside risks.

Ultimately, both options and futures markets point to pro traders moving out of the neutral-to-bearish sentiment to a neutral positioning, meaning there is no discomfort after the rejection at $1,680 and subsequent correction.

Consequently, the odds favor Ether bulls because the negative newsflow could not prevent the 35.5% year-to-date gains and the demand for shorts using futures contracts remains thin.

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 derivatives data shows room for BTC price to move higher this week

BTC options data suggest that the Bitcoin price rally still has legs, even with wider economic concerns growing and the potential of a brief pause in the crypto market rally.

This week Bitcoin (BTC) rallied to a 2023 high at $23,100 and the move followed a notable recovery in traditional markets, especially the tech-heavy Nasdaq Composite Index, which gained 2.9% on Jan. 20.

Economic data continues to boost investors’ hope that the United States Federal Reserve will reduce the pace and length of interest rate hikes. For instance, sales of previously owned homes fell 1.5% in December, the 11th consecutive decline after high mortgage rates in the United States severely impacted demand.

On Jan. 20, Google announced that 12,000 workers were laid off, more than 6% of its global workforce. The bad news continues to trigger buying activity on risk assets, but Dubravko Lakos-Bujas, chief U.S. equity strategist at JPMorgan, expects weaker earnings guidance to “put downward pressure” on the stock market.

The fear of recession increased on Jan. 20 after Federal Reserve Governor Christopher Waller said that a soft recession should be tolerated if it meant bringing inflation down.

Some analysts have pegged Bitcoin’s gains to Digital Currency Group filing for Chapter 11 bankruptcy protection — allowing the troubled Genesis Capital to seek the reorganization of debts and its business activities. But, more importantly, the move decreases the risk of a fire sale on Grayscale Investments assets, including the $13.3 billion trust fund Grayscale GBTC.

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

Bitcoin margin longs dropped after the pump to $21,000

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

The above chart shows that OKX traders’ margin lending ratio increased from Jan. 12 to Jan. 16, signaling that professional traders increased their leverage longs as Bitcoin gained 18%.

However, the indicator reversed its trend as the excessive leverage, 35 times larger for buying activity on Jan. 16, retreated to a neutral-to-bullish level on Jan. 20.

Currently at 15, the metric favors stablecoin borrowing by a wide margin and indicates that shorts are not confident about building bearish leveraged positions.

Still, such data does not explain whether pro traders became less bullish or decided to reduce their leverage by depositing additional margin. Hence, one should analyze options markets to understand if the sentiment has changed.

Options traders are neutral despite the recent rally

The 25% delta skew is a telling sign whenever arbitrage desks and market makers are overcharging 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.

As displayed above, the 25% delta skew reached its lowest level in more than 12 months on Jan. 15. Option traders were finally paying a premium for bullish strategies instead of the opposite.

Currently, at minus 2%, the delta skew signals that investors are pricing similar odds for bull and bear cases, which is somewhat less optimistic than expected considering the recent rally toward $22,000.

Derivatives data puts the bullish case in check as buyers using stablecoin margin significantly reduced their leverage and option markets are pricing similar risks for either side. On the other hand, bears have not found a level where they would be comfortable opening short positions by borrowing Bitcoin on margin markets.

Traditional markets continue to play a crucial role in setting the trend, but Bitcoin bulls have no reason to fear as long as derivatives metrics remain healthy.

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.

Bullish crypto traders maintain the upper hand despite the total market cap rejecting at $1T

Former BitMEX CEO Arthur Hayes says catastrophe is coming for the crypto sector, but derivatives data shows bulls slowly taking control of the market.

The total crypto market capitalization soared by 29.4% in two weeks, although Bitcoin’s (BTC) price stabilized near $21,000 on Jan. 19.

As a result, it became increasingly difficult to justify that the five-month-long bearish trend still prevails after the $930 billion total crypto channel top has been breached. Still, the psychological $1 trillion resistance remains strong.

*Total crypto market cap in USD, 2-day. Source: TradingView*

The move possibly reflects investors becoming more optimistic about risk assets after weaker-than-expected inflation metrics signaled that U.S. Federal Reserve’s interest rate hiking strategy should ease throughout 2023.

However, Klaas Knot, who serves as the governor of the Dutch central bank, stated on Jan. 19 that the European Central Bank (ECB) “will not stop after a single 50 basis point hike, that’s for sure.”

At the Davos forum, Knot added: “Core inflation has not yet turned the corner in the Euro area.”

In essence, investors fear that another round of interest rate increases could further pressure corporate earnings, triggering unemployment and a deep recession. In this case, a sell-off on the stock market becomes the base scenario and the crypto markets would likely follow the bear trend.

To further prove the strong correlation between cryptocurrencies and the stock markets, the Russell 2000 index declined 3.4% between Jan. 18 and Jan. 19. The movement coincides with the total crypto market capitalization correcting by 4% after flirting with the $1 trillion mark on Jan. 18.

The 10.4% gain in total market capitalization between Jan. 12 and Jan. 19 was impacted mainly by Bitcoin’s 10.4% gains and Ether (ETH), which traded up by 8.7%. The bullish sentiment was more eventful for altcoins, with eight of the top 80 coins gaining 20% or more in the period.

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

Metaverse-related tokens rallied after tech giant Apple announced the upcoming release of its VR headset. Top movers included Decentraland (MANA), up 55%; Enjin (ENJ) rising 37%; and The Sandbox (SAND) climbing 30%.

Frax Share (FXS) rallied 40% as it reached 65,000 Ether deposited on its liquid staking protocol, which currently has over U$100 million in total value locked.

Privacy coins like Monero (XMR) and ZCash (ZEC) both declined after increased regulatory risks and the U.S. Department of Justice announced the arrest of the founder of Bitzlato, a now-shutteredpeer-to-peer crypto exchange.

Demand for leveraged bullish bets rises

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

*Perpetual futures accumulated 7-day funding rate on Jan. 19. Source: Coinglass*

The seven-day funding rate was positive in every instance, meaning the data points to a higher demand for leverage longs (buyers) in the period. Still, being charged 0.25% per week to maintain their bullish trades opened should not be a significant concern for most investors.

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

Investors are not afraid of dips, according to BTC options

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

Even though Bitcoin failed to break the $21,500 resistance on Jan. 18, there were no signs of increased demand for downside protection. This becomes evident as the put-to-call volume remained below 0.80 the entire time, even after the negative 5.5% move on Jan. 18.

The neutral-to-bearish strategies remain strongly in demand in the BTC option markets, favoring call (buy) options by 23%.

Derivatives markets suggest support at the $930 billion level is strong

After solid gains over the past seven days, the cryptocurrency market continues to show resilience despite warnings of a “global financial meltdown” by BitMEX founder Arthur Hayes. This year “could be just as bad as 2022 until the Fed pivots,” Hayes wrote, calling that scenario his “base case.”

According to crypto derivatives metrics, there is hardly any sense of fear or absence of leverage buying demand after the total market capitalization first missed the opportunity to breach the $1 trillion mark. Those are encouraging signs, especially when combined with the technical analysis of the descending channel breakout.

Consequently, the odds favor the previous channel top at $930 billion becoming a strong support level. So, for now, even a downturn in traditional markets should not be a huge concern for crypto bulls, but investors should continue monitoring derivatives metrics.

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 corrected, but bulls are positioned to profit in Friday’s $580M BTC options expiry

Reduced inflationary pressure fueled crypto investors’ appetite for risk markets, eliminating the possibility of bears profiting from the $580 million Bitcoin options expiry on Jan. 20.

Bitcoin (BTC) price has held above $20,700 for 4 days, fueling bulls’ hope for another leg up to $23,000 or even $25,000. Behind the optimistic move was a decline in inflationary pressure, confirmed by the December 2022 wholesale prices for goods on Jan. 18.

The United States producer price index, which measures final demand prices across hundreds of categories also declined 0.5% versus the previous month.

Eurozone inflation also came in at 9.2% year-on-year in December, marking the second consecutive decline from October’s 10.7% record high. A milder-than-expected winter reduced the risk of a gas shortages and softened energy prices, boosting analysts’ hope of a “soft landing.” According to analysts, a soft landing would avoid a deep recession and possibly convince central banks to curb their interest rate hikes.

This week’s $580 million BTC options expiry on Jan. 20 looks like an easy win for bulls because the surprise seven-day, 23% rally above $21,000 caused most bearish bets to become worthless. The recent move has holders (or hodlers) calling a market bottom and the potential end to the bear market, but the options market might hold the answer.

Can Bitcoin options help bulls secure the $20,000 floor?

It might seem like a distant reality right now, but Bitcoin was trading below $17,500 just seven days ago. As the weekly options expiry on Jan. 20 approaches, the bullish bets are about to pay off, while bears will see their options becoming worthless as the deadline looms over them.

Bears’ main hope is the possibility of the U.S. Federal Reserve raising interest rates by 50 basis points at the next meeting, but that won’t take place until Feb. 1. The latest data on U.S. retail sales have shown a 1.1% retreat in December, the second consecutive spending cut. The odds are increasingly favorable for a 25 basis point interest rate increase, signaling that the central bank’s effort to curb inflation is achieving its expected results.

If bulls win on Jan. 20, they will likely add buying pressure and fuel the $20,000 support level.

Bitcoin bears were caught entirely off-guard

The open interest for the Jan. 20 options expiry is $580 million, but the actual figure will be lower since bears were decimated after Bitcoin breached $20,000. Bulls are in complete control, even though their payout becomes larger at $21,000 and higher.

*Bitcoin options aggregate open interest for Jan. 20. Source: Coinglass*

The 1.18 call-to-put ratio reflects the imbalance between the $150 million call (buy) open interest and the $125 million put (sell) options. If Bitcoin’s price remains above $17,000 at 8:00 am UTC on Jan. 13, less than $2 million worth of these put (sell) options will be available. This difference happens because the right to sell Bitcoin at $16,500 or $15,500 is useless if BTC trades above that level on expiry.

$21,000 Bitcoin would give bulls a $220 million profit

Below are the three most likely scenarios based on the current price action. The number of options contracts available on Jan. 20 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $19,000 and $20,000: 7,500 calls vs. 1,700 puts. The net result favors the call (bull) instruments by $110 million.
Between $20,000 and $21,000: 800 calls vs. 8,100 puts. The net result favors the call (bull) instruments by $165 million.
Between $21,000 and $22,000: 10,600 calls vs. 200 puts. The net result favors bulls by $220 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.

Bitcoin bears need to push the price below $20,000 on Friday to minimize the loss. On the other hand, the bulls can double their gains by pumping the price above $21,000 on Jan. 20 and profiting by $220 million.

The 7-day rally toward $21,300 liquidated $1.2 billion worth of leverage short (sell) futures contracts, so they might have less margin required to subdue Bitcoin’s price.

For now, bulls are well positioned to profit from the BTC weekly options expiry and use the proceeds to defend the $20,000 support.

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.