Options

Bitcoin derivatives data suggests bears will pin BTC below $21K leading in Friday’s options expiry

Bitcoin’s failure to break above $22,000 on July 8 opened room for bears to score a $100 million profit in this week’s options expiry.

Most Bitcoin (BTC) traders would rather see a sharp price correction and a subsequent recovery than agonize for multiple months below $24,000. However, BTC has been doing the opposite since June 14 and its most recent struggle is the asset’s failure to break above the $22,000 resistance. For this reason, most traders are holding back their bullish expectations until BTC posts a daily close above $24,000.

Events outside of the crypto market are the primary factor impacting investors’ perspectives on digital assets and on July 14, United States Treasury Secretary Janet Yellen warned that inflation is “unacceptably high” and she reinforced the support of the Federal Reserve’s efforts. When questioned about the impact of rising interest rates on the economy, Yellen recognized the risk of a recession.

On the same day, JPMorgan Chase reported a 28% decline in profits versus the previous year despite recording stable revenues. The difference comes chiefly from a $1.1 billion provision for credit losses because of a “modest deterioration” in its economic outlook.

Bitcoin’s correlation to the S&P 500 remains incredibly high and investors fear that a potential crisis in the global financial sector will inevitably lead to a retest of the $17,600 low from June 18.

*S&P 500 and Bitcoin/USD 30-day correlation. Source: TradingView*

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

The S&P 500 and Bitcoin 30-day correlation presently stands at 0.87, which has been the norm for the past four months.

Most bullish bets are above $21,000

Bitcoin’s failure to break above $22,000 on July 8 took bulls by surprise because only 2% of the call (buy) options for July 15 have been placed below $20,000. Thus, Bitcoin bears are slightly better positioned for the $250 million weekly options expiry.

*Bitcoin options aggregate open interest for July 15. 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 $134 million against the $116 million put (sell) options. Nevertheless, as Bitcoin currently stands below $21,000, most bullish bets will likely become worthless.

If Bitcoin’s price remains below $21,000 at 8:00 am UTC on July 15, only $25 million worth of these calls (buy) options will be available. This difference happens because there is no use in the right to buy Bitcoin at $21,000 if it trades below that level on expiry.

Bears could pocket a $100 million profit

Below are the three most likely scenarios based on the current price action. The number of options contracts available on July 15 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $18,000 and $19,000: 10 calls vs. 5,200 puts. The net result favors bears by $100 million.
Between $19,000 and $20,000: 200 calls vs. 3,400 puts. The net result gives bears a $60 million advantage.
Between $20,000 and $21,000: 1,300 calls vs. 1,700 puts. The net result is balanced between bulls and bears.

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.

Futures markets show bears are better positioned

Bitcoin bears need to pressure the price below $19,000 on July 15 to secure a $100 million profit. On the other hand, the bulls’ best-case scenario requires a push above $20,000 to balance the scales.

The lack of appetite from professional traders in the Bitcoin CME futures indicates that bulls are less inclined to push the price higher in the short term.

With that said, the most probable scenario favors bears, and to secure this Bitcoin price only needs to trade below $21,000 going into the July 15 options expiry.

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

2 key Ethereum derivatives metrics suggest that $880 was ETH’s bottom

Data shows Ethereum options traders are less bearish that before, and margin-based markets recently saw some investors go ultra-long on 491,000 ETH.

Ether (ETH) price is up 16% since July 1 and has outperformed Bitcoin (BTC) in the last 7 days. The move could be partially driven by investors clinging to their hopes that the Ethereum network transition to proof-of-stake (PoS) consensus will be a bullish catalyst.

The next steps for this smart contract involve “the Merge,” which was previously known as Eth 2.0. The final trial on the Goerli test network is expected in July before the Ethereum mainnet gets the green light for its upgrade.

Since Terra’s ecosystem collapsed in mid-May, Ethereum’s total value locked (TVL) has increased and the flight-to-quality in the decentralized finance (DeFi) industry largely benefited Ethereum thanks to its robust security and battle-tested applications, including MakerDAO.

*Total value locked by market share. Source: Defi Llama*

Ethereum currently holds a 57% market share of TVL, up from 51% on April 8, according to data from Defi Llama. Despite this gain, the current $35 billion in deposits on the networks’ smart contracts seem small compared to the $100 billion seen in December 2021.

Further supporting the decrease in decentralized application use on Ethereum is a drop in the median transfer fees, or gas costs, which currently stand at $1.32. This figure is the lowest since mid-December 2020 when the network’s TVL stood at $13 billion. However, one might attribute part of the movement to higher use of layer-2 solutions such as Polygon and Arbitrum.

Options traders flirt with the neutral range

Traders should look at Ether’s derivatives markets data to understand how whales and market makers are positioned. In that sense, the 25% delta skew is a telling sign whenever professional traders overcharge for upside or downside protection.

If investors expect Ether price to rally, the skew indicator moves to -12% or lower, reflecting generalized excitement. On the other hand, a skew above 12% shows reluctance to take bearish strategies, typical of bear markets.

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

The skew indicator briefly touched the neutral-to-bearish range on July 7 as Ether completed a 19% rally in four days. But those option traders soon shifted to a more conservative approach, giving higher odds of a market downturn as the skew moved to the current 13% level. In short, the higher the index, the less inclined traders are to price downside risk.

Margin traders have turned extremely bullish

To confirm whether these movements were confined to the specific options instrument, one should analyze the margin markets. Lending allows investors to leverage their positions to buy more cryptocurrency. When those savvy traders open margin longs, their gains (and potential losses) depend on the Ether price increase.

Bitfinex margin traders are known for creating position contracts of 100,000 ETH or higher in a very short time, indicating the participation of whales and large arbitrage desks.

*Bitfinex ETH margin longs. Source: Coinglass*

Interestingly, these margin traders greatly increased their longs since June 13 and the current 491,000 contracts is near its highest level in 8 months. This data shows that these traders are effectively not expecting a disastrous price move below $900.

While there hasn’t been a significant shift in pro traders’ options risk metrics, margin traders remain bullish and are unwilling to decrease their longs despite the “crypto winter.”

If these whales and market makers are convinced that $880 on June 18 was the absolute bottom, traders may begin to believe that the worst leg of the bear market is behind us.

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

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

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

*BTC-USD 12-hour price. Source: TradingView*

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

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

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

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

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

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

Bitcoin futures premium flips slightly positive

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

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

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

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

Option traders remain skeptical of each price pump

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

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

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

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

Contagion is still a threat that adds pressure across the market

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

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

3AC got liquidated at the generational bottom, send everything into super cycle with haste

— hentaiavenger66 (@hentaiavenger66) July 6, 2022

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

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

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

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

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

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

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

MicroStrategy and Celsius leverage use raised alarms

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

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

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

Just realized people with open borrows at low collateral ratios on Celsius are having to choose between getting liquidated due to market crash or depositing more collateral into a service that has frozen withdrawals and is potentially insolvent.

Woof.

— Nick Neuman (, ) (@Nneuman) June 13, 2022

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

Bitcoin futures metrics are near bearish territory

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

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

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

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

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

An unhealthy derivatives market is an ominous sign

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

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

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

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

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

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

Bitcoin derivatives data forecasts sub-$30K BTC price heading into Friday’s $800M options expiry

Bulls placed too much hope on $32,000 flipping to support, an error that is bound to show by Friday’s $800 million BTC options expiry.

Bitcoin (BTC) briefly broke above $32,000 on May 31, but the excitement lasted less than four hours after the resistance level proved to be tougher than expected. The $32,300 level represented a 20% increase from the May 12 swing low at $27,000 and it provided the necessary hope for bulls to buy some $34,000 and higher call options.

The fleeting optimism reverted to a sellers’ market on June 1 after BTC dumped 7.6% in less than six hours and pinned the price below $30,000. The negative move coincided with the United States Federal Reserve starting the process of scaling down its $9 trillion balance sheet.

On June 2, former BitMEX exchange CEO Arthur Hayes argued that the Bitcoin bottom in May could have been a strong signal. Using on-chain data , Hayes predicts strong support at $25,000, given that $69,000 marked this cycle’s all-time high, a 64% drawdown.

Even though analysts might issue rosy price predictions, the threat of regulation continues to cap investor optimism and another blow came on June 2 when the U.S. Commodity Futures Trading Commission (CFTC) filed suit against Gemini Trust Co for alleged misleading statements in 2017 regarding the self-certification evaluation of a Bitcoin futures contract.

On June 7, a bill to ban digital assets as payment was introduced in the Russian parliament. The bill loosely defines digital financial assets as “electronic platforms,” which can be recognized as the subjects of the national payment system and obliged to submit to the central bank registry.

Bulls placed their bets at $32,000 and above

The open interest for the June 10 options expiry is $800 million but the actual figure will be much lower since bulls were overly-optimistic. These traders might have been fooled by the short-lived pump to $32,000 on May 31 because their bets for Friday’s options expiry extend up to $50,000.

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

The 0.94 call-to-put ratio shows the balance between the $390 million call (buy) open interest and the $410 million put (sell) options. Currently, Bitcoin stands near $30,000, meaning most bullish bets are likely to become worthless.

If Bitcoin’s price moves below $30,000 at 8:00 am UTC on June 10, only $20 million worth of these call (buy) options will be available. This difference happens because a right to buy Bitcoin at $30,000 is useless if BTC trades below that level on expiry.

Bears aim for sub-$29,000 to profit $205 million

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

Between $28,000 and $29,000: 50 calls vs. 7,400 puts. The net result favors the put (bear) instruments by $205 million.
Between $29,000 and $30,000: 700 calls vs. 5,500 puts. The net result favors bears by $140 million.
Between $30,000 and $32,000: 3,700 calls vs. 3,400 puts. The net result is balanced between bulls and bears.
Between $32,000 and $33,000: 7,700 calls vs. 750 puts. The net result favors the call (bull) instruments by $220 million.

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

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

Bulls will try to pin BTC above $30,000

Bitcoin bulls need to push the price above $30,000 on June 10 to avoid a $140 million loss. On the other hand, the bears’ best case scenario requires a pressure below $29,000 to maximize their gains.

Bitcoin bulls just had $200 million leverage long positions liquidated on June 6, so they should have less margin required to drive the price higher. With this said, bears will undoubtedly try to suppress BTC below $30,000 ahead of the June 10 options expiry.

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

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

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

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

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

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

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

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

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

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

Derivatives metrics reflect investors’ bearish expectations

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

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

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

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

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

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

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

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

$32K Bitcoin price could turn the tides in Friday’s $160M BTC options expiry

BTC price lost the momentum that had pushed it to $32,300 on May 31, but this week’s option expiry could help bulls recapture the key price level.

Twenty-three agonizing days have passed since Bitcoin (BTC) last closed above $32,000 and the 10% rally that took place on May 29 and 30 is currently evaporating as BTC price retraces toward $30,000. The move back to $30,000 simply confirms the strong correlation to traditional assets and in the same period, the S&P 500 also retreated 0.6%.

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

Weaker corporate profits could pressure the stock market due to rising inflation and the upcoming U.S. Federal Reserve interest rate hikes, according to Citi strategist Jamie Fahy. As reported by Yahoo! Finance, Citi’s research note to clients stated:

“Essentially, despite concerns regarding recession, earnings per share expectations for 2022/2023 have barely changed.”

In short, the investment bank is expecting worsening macroeconomic conditions to reduce corporate profits, and in turn, cause investors to reprice the stock market lower.

According to Jeremy Grantham, co-founder and chief investment strategist of GMO, “We should be in some sort of recession fairly quickly, and profit margins from a real peak have a long way that they can decline.”

As the correlation to the S&P 500 remains incredibly high, Bitcoin investors fear that the potential stock market decline will inevitably lead to a retest of the $28,000 level.

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

Currently, the S&P 500 and Bitcoin 30-day correlation stands at 0.88, which has been the norm for the past couple of months.

Bearish bets are mostly below $31,000

Bitcoin’s recovery above $31,000 on May 30 took bears by surprise because only 20% of the put (sell) options for June 3 have been placed above such a price level.

Bitcoin bulls may have been fooled by the recent $32,000 resistance test and their bets for the $825 million options expiry go all the way to $50,000.

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

A broader view using the 0.77 call-to-put ratio shows more bearish bets because the put (sell) open interest stands at $465 million against the $360 million call (buy) options. Nevertheless, as Bitcoin currently stands above $31,000, most bearish bets will likely become worthless.

If Bitcoin’s price remains above $31,000 at 8:00 am UTC on June 3, only $90 million worth of these put (sell) options will be available. This difference happens because there is no use in a right to sell Bitcoin at $31,000 if it trades above that level on expiry.

Bulls might pocket a $160 million profit

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

Between $29,000 and $30,000: 1,100 calls vs. 5,100 puts. The net result favors bears by $115 million.
Between $30,000 and $32,000: 4,400 calls vs. 4,000 puts. The net result is balanced between call (buy) and put (sell) instruments.
Between $32,000 and $33,000: 6,600 calls vs. 1,600 puts. The net result favors bulls to $160 million.
Between $33,000 and $34,000: 7,600 calls vs. 800 puts. Bulls extend their gains to $225 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.

Bears have less margin required to suppress Bitcoin price

Bitcoin bears need to pressure the price below $30,000 on June 3 to secure a $115 million profit. On the other hand, the bulls’ best case scenario requires a push above $33,000 to increase their gains to $225 million.

However, Bitcoin bears had $289 million leverage short positions liquidated on May 29, according to data from Coinglass. Consequently, they have less margin required to push the price lower in the short term.

With this said, the most probable scenario is a draw, causing Bitcoin price to range near $31,000 ahead of the June 3 options expiry.

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

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

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

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

Will BTC reverse course even as macroeconomic conditions crumble?

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

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

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

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

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

Derivatives metrics are neutral-to-bearish

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

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

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

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

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

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

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

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

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