Skew

Bitcoin derivatives data points to traders' $50K BTC price target

Bitcoin bulls expectations of $50,000 and higher remain feasible according to BTC futures and options markets.

Bitcoin (BTC) price continues to trade below its 2023 high, a sign that investors may have underestimated the strength of the $44,000 resistance. Even as BTC price trades below $42,000, it doesn’t necessarily mean that reaching $50,000 and beyond is no longer possible. In fact, quite the opposite seems more likely to occur. Looking at Bitcoin derivatives metrics, it is clear that traders ignored the 6.9% drop and remained optimistic. However, is this optimism enough to justify further gains?

The $127 million liquidation of leveraged long Bitcoin futures on Dec. 11 may seem significant in absolute terms, but it represents less than 1% of the total open interest – the value of all outstanding contracts. Nevertheless, it’s undeniable that the liquidation engine triggered a 7% correction in less than 20 minutes.

On one hand, one could argue that derivatives markets played a crucial role in the recent negative price movement. However, this analysis overlooks the fact that after hitting a low of $40,200 on Dec. 11, Bitcoin’s price increased by 4.2% in the following six trading hours. In essence, the impact of forceful liquidation orders had dissipated long ago, disproving the notion of a crash solely driven by futures markets.

Bitcoin holds $30K, but some pro traders are skeptical about BTC price continuation

BTC traders are cautiously optimistic due to Bitcoin traditional assets, but there are still some macro headwinds to be aware of.

Bitcoin (BTC) price has finally broken the $30,000 level after the key price zone lasted as a ten months resistance level. BTC price rallied 6.5% on April 10 and the much-awaited price gain ended an agonizing 12-day period of extremely low volatility, which saw the price hovering close to $28,200. Bulls are now confident that the bear market has officially ended, especially considering the fact that BTC price has gained 82% year-to-date.

Another interesting note is that Bitcoin’s decoupling from traditional markets has been confirmed after the S&P 500 index presented a mere 0.1% gain on April 10, and West Texas Intermediate (WTI) oil traded down 1.2%. Bitcoin traders are likely anticipating the Federal Reserve’s interest rate policy to reverse sooner than later.

Stagflation risk could be behind the decoupling

Higher interest rates make fixed-income investments more attractive, while businesses and families face additional costs to refinance their debts. The reversal of the U.S. central bank’s recent tightening movement is deemed bullish for risk assets. However, the fear of stagflation — a period of increased inflation and negative economic growth — would be the worst-case scenario for the stock market.

Fixed-income traders are betting that the Federal Reserve probably has one more interest-rate hike because the latest economic data displayed moderate resilience. For instance, the 3.5% U.S. unemployment rate announced on April 7 is the lowest measure in half a century.

The U.S. treasuries market suggests a 76% chance that the Federal Reserve will bolster the benchmark by 0.25% on April 29, according to Bloomberg. There’s also the added uncertainty of the banking crisis’s impact on the sector, with JPMorgan Chase, Wells Fargo and Citigroup scheduled to report first-quarter results on Friday.

Bitcoin’s rally above $30,000 could be the first evidence of a shift in investors’ perception from a risk market proxy to a scarce digital asset that might benefit from a period of inflation pressure and weak economic growth.

Two critical factors will determine whether the rally is sustainable: the high leverage usage increasing the odds of forced liquidations during normal price fluctuations, and whether or not pro traders are pricing higher odds of a market downturn using options instruments.

Bitcoin futures show modest improvement

Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.

As a result, futures contracts in healthy markets should trade at a 5-to-10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Bitcoin 2-month futures annualized premium. Source: Laevitas.ch*

Bitcoin traders have been cautious in the past few weeks, and even with the recent breakout above $30,000, there has been no surge in demand for leverage longs. However, the Bitcoin futures premium has slightly improved from its recent low of 3% on April 8 to its current level of 4.2%. This suggests that buyers are not using excessive leverage and there is effective demand on regular spot markets, which is healthy for the market.

Bitcoin option traders remain neutral

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

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 7%, and phases of excitement tend to have a negative 7% skew.

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

Currently, the options delta 25% skew has shifted from a balanced demand between call and put options on April 9 to a modest 4% discount for protective puts on April 10. While this indicates a slight increase in confidence, it is not enough to break the 7% threshold for moderate bullishness.

In essence, Bitcoin options and futures markets suggest that pro traders are slightly more confident, but not excessively optimistic. The initial decoupling from traditional markets is promising because investors are showing confidence that crypto markets will benefit from higher inflationary pressure and it highlights traders’ belief the Fed can no longer continue raising interest rates.

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 holds its ground in the wake of CFTC case against Binance

BTC options and derivatives markets seem unfazed by the CFTC’s recent action against Binance, but is that a good or a bad sign?

The price of Bitcoin (BTC) fell 3.6% to $26,900 after Binance and CEO Changpeng “CZ” Zhao were sued by the United States Commodity Futures Trading Commission on March 27. To date, Binance has been investigated by the CFTC, Securities and Exchange Commission, the Internal Revenue Service and federal prosecutors.

The Bitcoin price correction may have been limited due to Silicon Valley bank’s successful asset sale to First Citizens BancShares at a $16.5 billion discount, which received an extraordinary credit line from the Federal Deposit Insurance Corporation to compensate for potential future losses.

Oil prices also increased by 5% on March 27 after Russian President Vladimir Putin escalated geopolitical tensions in Europe. As reported by Investing.com, Russia plans to station tactical nuclear weapons in neighboring Belarus, in a move designed to intimidate opposing countries over their support for Ukraine.

Further tension from the crypto industry arose after a U.S. Federal Judge decided to temporarily halt the proposed sale of Voyager Digital to Binance.US. on March 27. Judge Jennifer Rearden of the U.S. District Court in New York granted the request for an emergency stay.

Let’s examine Bitcoin derivatives metrics to determine the current market position of professional traders.

Bitcoin futures show no impact from the CFTC–Binance case

Bitcoin quarterly futures are popular among whales and arbitrage desks, which typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement for a longer period.

As a result, futures contracts on healthy markets should trade at a 5%–10% annualized premium — a situation known as contango, which is not unique to crypto markets.

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

The Binance news had no effect on the Bitcoin futures premium, despite the fact that the exchange holds 33% of the $11.2 billion open interest. The two-month contract premium is 3.5%, which is less than the neutral 5% threshold. Had there been some panic selling using leverage futures contracts, the indicator would have quickly moved to zero or even negative.

The absence of demand for leverage longs does not necessarily imply a price decline. As a result, traders should investigate Bitcoin’s options markets to learn how whales and market makers value the likelihood of future price movements.

Bitcoin options traders remain slightly optimistic

The 25% delta skew is a telling sign showing 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 8%. On the other hand, bullish markets tend to drive the skew metric below -8%, meaning the bearish put options are in less demand.

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

The 25% skew ratio stands at -5, indicating that the protective put options are trading at a slight discount, confirming the Binance news’ irrelevance. More importantly, the CFTC action had no effect on the 25% skew, so whales and market markets are not pricing in any meaningful market structure change.

What doesn’t kill you makes you stronger

The fact that derivatives indicators were barely impacted could be the “remote misses” effect, as analysis and pundits evaluate the odds of Binance and CZ getting anything more than a million-dollar fine and some term of conduct adjustment.

This type of psychological distortion was first observed in London during World War II when survivors who did not face imminent losses became even more confident and less likely to feel traumatized.

It appears unlikely that the market will price in higher odds of extreme volatility until those whales and arbitrage desks face more than a 3.5% price correction.

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.

Investors shelter in short-term Treasurys, reducing Bitcoin’s chance of rallying to $30K

Bitcoin price finally broke through the $28,000 mark, but BTC futures and options data suggest some traders are uneasy about the strength of the recent bullish momentum.

The price of Bitcoin (BTC) surpassed $28,000 on March 21, but according to two derivatives metrics, traders aren’t very ecstatic after a 36% gain in eight days. Looking beyond Bitcoin’s stellar performance, there are reasons investors are not fully confident in further price upside. The recent rescue of Credit Suisse, a 167-year-old leading Swiss financial institution, is proof that the current global banking crisis might not be over.

On March 19, Swiss authorities announced that UBS had agreed to acquire rival Credit Suisse in an “emergency rescue” merger in order to avoid further market-shaking turmoil in the global banking sector. The transaction could benefit from more than $280 billion in state and central bank support, which is equivalent to one-third of Switzerland’s gross domestic product. Unfortunately, there is no way to portray this agreement as reassuring or as a sign of strength from financial institutions, including central banks.

The same can be said for the emergency credit lifeline provided by the United States Treasury to protect the banking sector and increase Federal Deposit Insurance Corporation reserves. The “Bank Term Funding Program” (BTFP), launched on March 12, marked a return to Fed liquidity injections, reversing the trend initiated in June 2022, when the Federal Reserve began monthly asset sales.

The global banking crisis prompted the Fed to abandon its inflation-control policies

By lending $300 billion in emergency funds to banks, the Fed completely reversed its strategy to curb inflation, which has been above 5% year-over-year since June 2021, whereas the target is 2%. This strategy, known as tightening, included increasing interest rates and reducing the $4.8 trillion in assets the Federal Reserve accumulated from March 2020 to April 2022.

On March 20, First Republic Bank (FRB) saw its credit ratings downgraded further into junk status by S&P Global, adding to the stress on United States’ regional banks. According to the risk agency, the lender’s recent $30 billion deposit infusion from 11 large banks may not be enough to solve the FRB’s liquidity problems.

Investors in cryptocurrencies are always anticipating a decoupling from the traditional markets. Nonetheless, there are few justifications for an allocation at the moment, especially if coming from corporations, mutual fund managers or wealthy investors. Historically, investors tend to hoard cash positions or short-term government debt instruments during recessionary periods in order to sustain day-to-day operations and possibly be used to purchase bargains.

The yield on six-month U.S. Treasurys, for example, decreased from 5.33% on March 9 to 4.80% on March 20. As investors prepare for the impact of inflation or a recession, or both, this development indicates a greater demand for short-term instruments. The change since March 9 reversed the entire movement from 2023, with the indicator closing 2022 at 4.77%.

Let’s examine Bitcoin derivatives metrics to determine the current market position of professional traders.

Bitcoin derivatives exhibit a balanced demand for long and short positions

As a result, futures contracts in healthy markets should trade at a 5%–10% annualized premium — a situation known as “contango,” which is not unique to crypto markets.

Since March 15, the BTC futures premium indicator has remained unchanged at 2.2%, indicating no additional demand from leveraged buying activity. Numbers below 5% indicate pessimism, which is not what one would anticipate after price gains of 36% in eight days.

The delta skew crossed the neutral -8% threshold on March 19, indicating moderate optimism as neutral-to-bullish call options were in higher demand. The excitement, however, did not last long, as the 25% skew indicator is currently at -8%, which is the edge of a balanced situation. Nonetheless, it is the polar opposite of the previous week, when the skew reached 12% on March 13.

Ultimately, professional Bitcoin traders are not bullish above $26,000. This is not necessarily a bad thing, but unless crypto investors regain confidence, the chances of the cryptocurrency surpassing $30,000 remain extremely remote. A complete breakdown of the banking system would cause investors to flee to safety rather than seek out risk.

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 derivatives suggest $26K resistance level won’t hold for long

BTC margin and option markets show no signs of discomfort or overconfidence despite 28% gains in two days.

The price of Bitcoin (BTC) increased by 28% between March 12-14, reaching $26,500, its highest level since June 2022. Some may attribute the gains to the consumer price index’s (CPI) 6% year-over-year increase in February, even though the figure was in line with expectations.

The inflation metric reached its lowest level since September 2021, which is a positive development, but it does not validate the Federal Reserve’s attempt to reduce the metric to 2%. Most likely, risk markets, such as stocks and cryptocurrencies, soared after regional bank stocks recovered from their March 13 lows.

At 10:30 a.m. Eastern Time, First Republic Bank (FRC) shares were trading 54% higher, followed by Western Alliance Bancorporation (WAL) gaining 46% and KeyCorp (KEY) gaining 15%. The 30-year average mortgage rate decreased to 6.6% from 7.1% on March 7. Consequently, reduced mortgage rates have the potential to improve the housing market, which partially explains the rally.

The unexpected decline in mortgage rates may present an opportunity for price-sensitive homebuyers and homeowners waiting for a chance to lock in a lower rate. According to data from Realtor.com, a buyer of a median-priced home still faced a monthly mortgage payment that was 49% higher than it was one year prior.

Despite the possibility of a recession in the United States due to high interest rates, China’s economic outlook remains positive. Li Qiang addressed reporters on March 14 for the first time since assuming the position that oversees the State Council, China’s highest executive body. According to Qiang, non-state-owned enterprises in China will have greater room for development.

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

Bitcoin margin markets signaling a market deficiency

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 and buying Bitcoin. On the other hand, borrowers of Bitcoin can only take short bets against the cryptocurrency.

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

Since March 13, OKX traders’ margin lending ratio has been above 35, indicating a significant mismatch in favor of Bitcoin longs. Readings above 40 are uncommon and driven by a high stablecoin borrowing cost of 25% per year.

One should refer to the BTC option markets to confirm whether professional traders are effectively expecting further price increases.

Options traders are far from excited

Traders should also analyze options markets to understand whether the recent correction has caused investors to become less 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 premium for protective put options is higher than the premium for risk call options.

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 8%, and generalized excitement has a negative 8% skew.

On March 13, when Bitcoin broke above the $22,000 resistance level, the BTC options’ main risk gauge exited the fear zone that had been in place for three days. As options traders assigned the same risk assessment to bullish and bearish strategies, the 25% delta skew entered a neutral zone.

However, it would be incorrect to conclude that the negative 5% skew seen briefly on March 14 indicates excessive optimism or bullishness. Analysts and pundits frequently jump the gun and celebrate quick reversions, but anything between -8% and +8% remains in the neutral zone.

According to the pricing of options contracts, derivatives data indicates that professional traders maintained their long positions using margin markets and exited their bearish stance on March 13. Given the improvement in macroeconomic market conditions, Bitcoin bulls are well-positioned to drive the price above $26,000.

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 derivatives suggest $26K resistance level won’t hold for long

BTC margin and options markets show no signs of discomfort or overconfidence despite 28% gains in two days.

The price of Bitcoin (BTC) increased by 28% between March 12 and 14, reaching $26,500, its highest level since June 2022. Some may attribute the gains to the Consumer Price Index’s (CPI) 6% year-over-year increase in February, even though the figure was in line with expectations.

The inflation metric reached its lowest level since September 2021, which is a positive development, but it does not validate the United States Federal Reserve’s attempt to reduce the metric to 2%. Most likely, risk markets, such as stocks and cryptocurrencies, soared after regional bank stocks recovered from their March 13 lows.

At 10:30 am Eastern Time, First Republic Bank (FRC) shares were trading 54% higher, followed by Western Alliance Bancorporation (WAL) gaining 46% and KeyCorp (KEY) gaining 15%. The 30-year average mortgage rate decreased to 6.6% from 7.1% on March 7. Consequently, reduced mortgage rates have the potential to improve the housing market, which partially explains the rally.

Despite the possibility of a recession in the U.S. due to high interest rates, China’s economic outlook remains positive. Li Qiang addressed reporters on March 14 for the first time since assuming the position that oversees the State Council, China’s highest executive body. According to Qiang, non-state-owned enterprises in China will have greater room for development.

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

Bitcoin margin markets signaling a market deficiency

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 and buying Bitcoin. On the other hand, borrowers of Bitcoin can only take short bets against the cryptocurrency.

One should refer to the BTC option markets to confirm whether professional traders are effectively expecting further price increases.

Options traders are far from excited

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 8%, and generalized excitement has a negative 8% skew.

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 drops to $20.8K as regulatory and macroeconomic pressure mounts

BTC margin and options markets are steady, even as investors run for cover as crypto and stock prices fall.

Bitcoin (BTC) traders saw continued downward pressure after the 5.5% decline in BTC price on March 7. Higher odds of further interest rate increases by the U.S. Federal Reserve and regulatory pressure in the cryptocurrency space explain some of the movement.

Financial markets showed signs of stress as the inverted bond curve reached its highest level since the 1980s. Longer-term dated yields have stalled at 4%, while two-year treasury notes traded above 5% yield in March.

Since July, longer-dated treasury yields have failed to keep pace with the surging two-year benchmark, resulting in the inverted curve distortion that typically precedes economic downturns. According to Bloomberg, the indicator reached a full percentage point on March 7, the highest level since 1981, when Fed Chair Paul Volcker faced double-digit inflation.

This week, BlackRock, the world’s largest asset manager, increased its forecast for U.S. federal funds to 6%. Rick Rieder, chief investment officer of global fixed income at BlackRock, believes the Fed will keep interest rates high for “an extended period to slow the economy and get inflation down to near 2%.”

Fear of cryptocurrency regulation grows

According to a Wall Street Journal report, the Biden administration wants to apply the wash sale rule to crypto, which would put an end to a strategy in which a trader sells and then immediately buys digital assets for tax purposes.

Furthermore, the Public Company Accounting Oversight Board, an organization that keeps an eye on audits of public companies in the United States, recently put out a warning to investors about proof-of-reserves reports that auditing firms send out.

The organization, backed by the U.S. Securities and Exchange Commission, said that “Investors should note that PoR engagements are not audits and, consequently, the related reports do not provide any meaningful assurance.”

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

Bitcoin margin markets have returned to normalcy

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

For example, one can increase exposure by borrowing stablecoins and buying Bitcoin. Borrowers of Bitcoin, on the other hand, can only take short bets against the cryptocurrency.

The above chart shows that OKX traders’ margin lending ratio dropped dramatically on March 9, moving away from a situation that previously favored leverage long positions. Given the general bullishness of crypto traders, the current margin lending ratio at 16 is relatively neutral.

On the other hand, a margin lending ratio above 40 is very rare, even though it has been the norm since Feb. 22. It is partially driven by a high borrowing cost for stablecoins of 25% per year. Following the recent anomaly, the margin market has returned to a neutral-to-bullish state.

Options traders are pricing in a low risk of extreme price corrections

Traders should also analyze options markets to understand whether the recent correction 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.

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 10% and generalized excitement has a negative 10% skew.

Even though Bitcoin failed to break the $25,000 resistance on Feb. 21 and then experienced a 14% correction in 16 days, the 25% delta skew remained in the neutral zone for the past month. The current positive 3% skew indicates a balanced demand for bullish and bearish option instruments.

Derivatives data shows that professional traders are unwilling to go bearish, as evidenced by options traders’ neutral risk assessment. Furthermore, the margin lending ratio indicates that the market is improving as some demand for bearish bets has emerged, but the structure remains neutral-to-bullish.

Given the enormous downward price pressure from a macroeconomic standpoint, as well as ongoing regulatory pressure in the United States, bulls should probably be content that Bitcoin derivatives have remained solid.

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.

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.

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.

Ethereum’s $1.5K support weakens as ETH traders turn slightly bearish

ETH derivatives data shows bulls becoming less inclined to defend the current price level, creating an opportunity for more downside.

The price of Ether (ETH) declined 10.2% between Jan. 8 and Jan. 10, and has since been range trading near the $1,500 level. More importantly, on a broader time frame, Ether is down 52.5% in twelve months, which partially explains why derivatives metrics were somewhat neutral after Ether’s failed attempt to break $1,700 on Feb. 8.

Currently, investors’ biggest concerns are the U.S. Securities and Exchange Commission’s lawsuits and enforcement actions against crypto firms, including Kraken’s tanking its staking-as-a-service program and PayPal reportedly pausing its stablecoin project due to regulatory concerns.

A crackdown by the SEC on crypto staking is expected to have unintended consequences for decentralized finance, according to Jacob Blish, the head of business development at Lido DAO. Blish joined a growing number of people in the crypto industry calling for transparency in crypto sector regulation.

On the bright side, Ethereum developers announced the pre-launch of the Shanghai upgrade on the Zhejiang testnet. According to a blog post on Feb. 10, the transition is required to enable withdrawals from validators’ staking positions. The Zhejiang test network is the first of three testnets that simulate Shanghai, which is expected to go live in March, although a specific date has not been released.

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

ETH futures show slowing demand for leverage longs

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

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

The above chart shows that derivatives traders are more bearish because the Ether futures premium moved below the 4% threshold. Consequently, bears can celebrate that the indicator failed to display a modest premium even as ETH tested $1,700 on Feb. 8.

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

A key options risk metric flirted with the 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. That is a stark contrast from late January when the 25% skew index hovered near 2% — indicating similar upside and downside risks.

Ultimately, both options and futures markets point to pro traders moving to a neutral-to-bearish sentiment, displaying moderate discomfort after the $1,700 price rejection.

Consequently, the odds favor Ether bears because the hostile regulatory environment tends to amplify the adverse effects of FUD — whether or not it directly impacts the Ethereum network’s adoption and use cases.

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.