Bitcoin derivatives metrics reflect traders’ neutral sentiment, but anything can happen

Bitcoin (BTC’s) last daily close above $45,000 occurred 66 days ago. But, more important, the current level of $39,300 was first observed on January 7, 2021. BTC’s price reached $69,000 on November 10, 2021 after 13 months of boom-and-bust cycles.

The United States Securities and Exchange Commission rejected the VanEck spot Bitcoin exchange traded fund on November 12, 2020. Although the decision was expected, the regulator was very clear about the reasons behind the rejection.

Curiously, almost one year later, on November 10, 2021, cryptocurrency markets surged to an all time high market capitalization of $3.11 trillion. This was just as U.S. inflation measured by the CPI index reached 6.2%, a 30-year record.

The U.S. Federal Reserve admitted on November 30, 2021 that inflation was more than a temporary problem. It suggested that tapering might occur sooner than anticipated.

Recenty, the U.S. Senate approved a $1.5 trillion package on March 10. It now awaits President Joe Biden to sign it. This is the first budget increase in over a decade since Donald Trump’s departure.

Pro traders don’t want to hold longs that are leveraged, according to data

Let’s take a look at Bitcoin’s options and futures market data to see how professional traders position themselves, including whales, market makers and market makers. Basis indicators measure the difference between current spot market levels and longer-term futures contracts.

To compensate traders who “lock in” the money for the two- to three month period leading up to the contract expiry, the annualized Bitcoin futures premium should be between 5% and 12%. Low levels below 5% indicate extreme bearishness, and high numbers above 12% are bullish.

Annualized premium for Bitcoin 3-month futures. Source: Laevitas.ch

The chart above shows that this indicator fell below 5% on February 11, but has not shown any signs of confidence from professional traders.

However, it is not unreasonable to believe that a break of the $44,500 resistance will catch investors off guard and create strong buying activity to cover short positions.

Option traders are less concerned about potential downside risks.

Bitcoin is currently at $40,000 and seems unsure, making it hard to see a direction for the market. The 25% delta skew indicates that arbitrage desks or market makers are charging too much for downside or upside protection.

The skew indicator will rise above 10% if these traders are worried about a Bitcoin price crash. Generalized excitement, on the other hand, reflects a skew of minus 10%. This is why the metric is also known as the pro traders fear and greed metric.

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

The skew indicator fluctuated between 7% to 11% from February 28th through March 8th, as shown above. These option traders, although not necessarily indicating fear, were charging a large margin for downside protection.

Related: Bitcoin rises to $40K after Russia observes “positive shifts” in Ukraine war dialog

The last three days have shown a significant improvement, and the current 4% delta skew indicates more of a balanced position. The BTC options market view shows that there is a similar risk of unexpected price swings, both upward and downward.

Bulls have an exciting opportunity with mixed data from Bitcoin derivatives. The futures premium is cheap and offers long-term leverage at a low cost. In addition, the downside protection is at its lowest point in thirty days.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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