Bitcoin’s current setup creates an interesting risk-reward situation for bulls

The Bitcoin (BTC), chart has formed a symmetrical triangular pattern, currently holding a range of $28,900 to $32,900. This pattern has held for almost two weeks, and it could continue for two more weeks before price moves decisively.

Kraken: Bitcoin/USD 12-hour price Source: TradingView

A symmetrical triangle, which can either be bullish or bearish for those not familiar with technical analysis, can be described as either bullish. The price convergence is a series lower peaks and higher highs. When the market decides to follow a new trend, the decisive moment will be the support or resistance breakthrough. The price could move in any direction.

Bitcoin derivatives data shows that investors are pricing lower odds of a downturn but recent improvements in global economic outlook might surprise bears.

The macro situation has improved, and BTC miners remain busy

Cointelegraph reports that crypto markets rose on May 23 due to favorable macroeconomic conditions in the United States. The United States President Joe Biden had announced plans to reduce trade tariffs with China before the market opened. This helped boost investors’ morale.

According to recent estimates, Bitcoin’s network difficulty is expected to decrease by 3.3% during its next automated adjustment this week. This will be the biggest downward shift since July 2021, and it is clear that Bitcoin’s downtrend has impacted miners’ profitability.

Glassnode, an on-chain analytics platform, reports that miners have not shown any signs of capitulation despite their wallets’ movement to exchanges hitting a 30-day low on May 23.

Although miners’ sentiments and flows are important for traders, traders also need to monitor how whales or market markers are placed in futures and options markets.

Bitcoin derivatives metrics are neutral-to-bearish

Due to the fixed settlement date and price differential from 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 asking for more money to hold settlement longer. This is technically known as “contango”, and it is not only applicable to crypto markets. Futures should be traded at a premium of 5% to 15% annually in healthy markets.

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

The above data shows that Bitcoin’s basis indicator is below 4% as of April 12. This is typical for bearish markets. However, it is encouraging that the basis indicator has not declined after the sell-off to $25,400 May 12.

Trader must also analyze Bitcoin options markets to exclude externalities that are not specific to the futures instrument. The 25% delta skew can be very useful as it indicates when market makers and Bitcoin arbitrage desks are charging too much for downside or upside protection.

The skew indicator will rise above 12% if option investors are worried about a Bitcoin price crash. Generalized excitement, however, reflects a negative 12 percent skew.

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

On May 9, the skew indicator jumped above 12%, entering the “fear level” as options traders overcharged to protect downside risks. The most recent reading of 25.4% was also the lowest ever recorded for this metric.

Related: Bitcoin targets 8th weekly red candle, while BTC price limits weekend losses

Fearful people are afraid of you. Be brave

BTC options markets remain stressed, which suggests professional traders aren’t confident taking on downside risk. The futures premium for Bitcoin has been relatively resilient, but the indicator indicates a lackluster interest from long-leveraged buyers.

While it might seem counter-intuitive to make a bullish bet right now, professional traders would be taken by surprise if there is an unexpected price rise. It creates a unique risk-reward scenario for Bitcoin bulls.

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