The 22nd. In March, Federal Reserve Chairman Jerome Powell said bitcoin was too volatile, not backed by anything and instead a commodity for speculation. Interestingly, on the same day, BTC lost $56,000 in support, which became resistance.
Traders fear it’s a new pump as the decline prevails. While this is possible, the derivative indicators are not bearish and any decent correction would likely hit solid support at the $50,000 level.
Bitcoin Price 3-Hour Candlestick Chart (Coinbase). Source: TradingView
Some of the investor uncertainty may stem from the record $6.1 billion raised on the 26th. March is cancelled. However, 84% of bearish neutral puts are already considered worthless now that the price of BTC has risen above $50,000.
In addition, the CME has $980 million worth of futures contracts that expire on the same day. If the buyers (longs) and sellers (shorts) are still the same, some traders are concerned that futures traders looking to reverse their positions in April and May could put pressure on BTC prices.
Unlike open futures contracts, these CME Fixed Calendar contracts have a fixed expiration date. So to maintain a long position, it is necessary to buy futures for April or May and sell the March contract at the same time.
Therefore, to better assess the impact of whales and arbitrage fees on the market, the performance of derivatives should be closely monitored.
Futures premium continues to rise
By measuring the difference in cost between futures contracts and the regular cash market, a trader can assess the degree of market upside.
Three-month futures contracts typically trade at a 10-20% premium to ordinary cash transactions, justifying blocking funds rather than immediate payment. Whenever this indicator weakens or turns negative, which is called a reversal, it indicates that the market is bearish.
OKEx 3-month BTC Futures Basis. Source: Crouch.
In the chart above, you can see that the indicator was 25. Mars fell 17% recently, while BTC tested support at $50,000. These are extremely bullish signals because they indicate that leveraged buyers remain bullish and do not want to short their positions.
Whenever the base reaches 35% or more, this suggests extreme leverage for buyers, but this is clearly not the case now.
The options slider has been in place since 19 January. neutral.
When analyzing the options, the 25% delta slope is the most relevant. This indicator compares similar call and put options side by side. Some analysts point to the ratio of puts to calls, but this does not exclude worthless options, such as the right to sell BTC for $45,000.
Consequently, delta skew yields a less contaminated number and becomes negative when the premium for puts is higher than the premium for calls with similar risk. This positive bias leads to higher fall protection costs, suggesting optimism.
The opposite happens when market makers are bearish, causing the delta skew indicator to flip 25% in the positive direction.
Deribit BTC Options 25% Delta Slope. Source : laevitas.ch
The skewness indicator has remained unchanged for the past five weeks, indicating a lack of optimism or pessimism on the part of whale oil and options producers. The slope between a negative value of 10 and a positive value of 10 is considered to be neutral, which means a balanced assessment of the risk.
Retailers keep pace with futures contracts
Since futures and options offer mixed sentiment, the coverage ratio for perpetual futures should also be watched. This tax is levied every eight hours to ensure that there is no unbalanced risk in the futures markets. When it becomes positive, it means that (long) buyers pay the carry costs at the cost of higher leverage.
BTC perpetual futures 8-hour funding rate. Source: Bybt
The current average of 0.04% is relatively neutral, equivalent to 0.8% per week. Although these fees are charged over a long period of time, they are far from being considered expensive. This data suggests that private traders are not creating arbitrage opportunities, which means that fixed income futures are trading at a premium.
Overall, derivatives performance is healthy, given that BTC is down 16% from its ’13 record high. March at $61,800. These data leave room for further purchases, so market participants should not consider the current situation as unusual.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.
frequently asked questions
Can bitcoin reach 50k?
It is possible that bitcoin will reach the moon. $50,000 by 2021 is a viable target. Bitcoin could reach $50,000 sooner than expected, in fact within a few months.
Why is bitcoin falling?
Analysts suggested that the reason for bitcoin’s decline was that more than $5 billion worth of options expired on Friday, contributing to volatility as investors liquidated their positions. Options are contracts that allow investors to bet on price movements without having to trade the digital currency itself.
Why is the price of bitcoin so high?
So bitcoin is still relatively small. As bitcoin becomes more widespread and accepted as digital gold, the network will store much more value. This means a higher price for bitcoin, as supply growth is limited to around 2% per year, and supply growth will continue to decline over time.
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