The market capitalization of cryptocurrencies rose 12.5% in the past seven days, to $2.44 trillion. This move isn’t encouraging confidence as it follows ether’s (16) attempt to break $3650 in six days.
Buyers may be concerned by regulation as the U.S. House of Representatives will vote on the $1 trillion infrastructure bill. The legislation will define who qualifies for broker status. It also will impose anti-money laundering and know-your customer (KYC) requirements on various types of cryptocurrency transactions. This could be harmful to DeFi protocols.
The top eight most popular cryptos in 7- and 30-day performance. Source: CoinMarketCap
The negative performance of the top 10 cryptocurrencies over the past 30 day has had an impact on investor sentiment, as shown in the above graph. It is important to take into account more than Bitcoin’s nominal value. BTC’s derivatives indicators such as the futures market premium and options skew should be examined by traders.
Futures premium shows that traders are slightly bullish
The basis rate, also known as the futures premium, measures the difference between current spot market levels and longer-term futures contracts.
In healthy markets, a 5% to 15% annualized increase in premium is to be expected. This is known as contango. Sellers are able to demand more money in order to delay settlement.
Annualized Bitcoin 3-month Futures. Source: Laevitas.ch
The current 9% annualized premium, as shown above, is neutral. However it shows an improvement over previous weeks. This indicates that traders are cautiously optimistic and allow for longer leverage when confidence has fully returned.
Options traders exit ‘fear’ mode
Option markets can be used to exclude externalities that are not specific to futures instruments.
The 25% delta skew is a comparison of similar call (buy) or put (sell). If “fear” is present, the metric will be positive as the protective put option premium is greater than other risk options.
When market makers are bullish, the opposite is true. The 25% delta skew indicator will shift to the negative zone. Normally, readings between negative 8 and positive 8 are considered neutral.
Deribit BTC options 25% delta skew. Source: Laevitas
As the $41,000 support was repeatedly tested, Bitcoin option traders reached the “fear” zone on Sept. 25, when the $41,000 support was also tested. However, the indicator has now moved to a neutral area after a dramatic change since Sept. 30.
The current situation is that both the futures’ base and options 25% skew reflect a typical “glass half-full” scenario. This means that although Bitcoin has reached its highest point in 27 days and is now above the $50,000 resistance, buyers still have room to add leverage before metrics show signs of overextension.
A $50,000 breakout with current weak derivatives data would normally be considered a weakness. There is no reason for concern, however, given that crypto capitalization remains the same as it was 30 days ago, and there are still unresolved regulatory concerns. At this moment, neither options nor futures markets are showing signs of bearishness.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.