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

For the past three weeks, Bitcoin (BTC), a descending triangle pattern has been pressing. While some traders refer to this as a bullish pattern, the $19,000 support is still a critical level that will determine the fate of the bulls.

BTC-USD 12-hour price. Source: TradingView

Despite not having a price bottom, Bitcoin derivatives metrics have improved significantly since June 30, and VanEck’s positive news may have helped traders’ feelings.

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.

A Huobi exchange subsidiary also received its money services business license (MSB), from the United States Financial Crimes Enforcement Network, (FinCEN) that day. According to the company, which is based in Seychelles, the license will allow them to expand their crypto-related business in America.

On July 7, some good news was released when Celsius Network, a decentralized finance staking platform and lending platform, announced that it had repaid all of its outstanding debt to Maker protocol (MKR).

After historic losses across many positions, Celsius is one of several crypto yield platforms that are on the verge of bankruptcy. The recent cryptocurrency price crash was accelerated by the forced sale of leveraged positions on exchanges and Decentralized Finance (DeFi) applications.

Trader sentiment is mixed between concerns about possible contagion effects and optimism that $19,000 support will grow in strength. Analyzing derivatives data is crucial to determine whether investors are pricing in higher chances of a market decline.

The Bitcoin futures premium is slightly positive

Due to the fixed settlement date and the price difference with spot markets, retail traders tend not to trade quarterly futures. The greatest advantage of contracts is their lack of fluctuating funding rates; hence the popularity of professional traders and arbitrage desks.

Fixed-month contracts trade at a slightly higher premium than spot markets because sellers are willing to hold settlements longer and receive more money. This is known technically as “contango”, and it is not limited to crypto markets. Futures should be traded at a premium of 5% to 10% annually in healthy markets.

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

The Bitcoin annualized futures premium fell to -0.28% on June 28, which indicated low demand from leverage buyers. However, the indicator moved to the positive zone on July 4, indicating that the bearish structure was not sustainable.

Related: Genesis Trading CEO confirms 3AC Exposure, parent company helps to plug losses

Option traders remain skeptical about each price pump

Trader must also examine the options markets to exclude any externalities that may be associated with the Bitcoin futures instrument. The 25% delta skew, for instance, shows arbitrage desks charging too much for protection against upside and downside.

Options traders have higher odds of a price rise in bullish markets. This causes the skew indicator below -12%. A market’s generalized fear emotion induces a positive skew of 12% or more.

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

June 18 saw the record-breaking 30-day delta skew. This is typical for extremely bearish markets. The current 16% level of skew is a sign that investors are unwilling to provide downside protection. This can be seen in the excessive pricing for put options.

Market pressure is being added by contagion, which continues to be a threat

Although it’s difficult to say if $17,580 was the low of the cycle, traders have attributed the move to Three Arrows Capital failing to pay its margin calls.

Although some traders call for a “generational bottom,” investors still need to be bullish. Bitcoin is locked in a downward triangle formation.

3AC was liquidated at the generational top, so send everything into supercycle with haste
— July 6, 2022, hentaiavenger66 @hentaiavenger66

One side shows modest improvement in Bitcoin derivatives metrics since June 30. Investors remain cautious about the possibility of contagion from this important crypto asset manager and venture capitalist.

Sometimes, it is best to wait for a clearer market and avoid leverage at any cost.

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