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

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A descending triangle pattern has put pressure on Bitcoin (BTC) for the past three weeks and although some traders are citing this as a bullish reversal pattern, the $19,000 support remains a crucial level in determining the fate of the bulls.

12-hour BTC-USD price. Source: Trading View

Despite the apparent lack of a clear price floor, Bitcoin derivatives metrics have improved significantly since June 30, and positive news from global asset manager VanEck may have eased trader sentiment.

On July 5, two pension funds in the US state of Virginia announced a $35 million commitment to VanEck’s cryptocurrency-focused investment fund.

On the same day, an exchange subsidiary of Huobi received its Money Services Business (MSB) license from the Financial Crimes Enforcement Network (FinCEN) of the United States. The Seychelles-based company said the license creates a foundation for expanding crypto-related business in the United States.

Positive news came out on July 7 as decentralized finance and lending platform Celsius Network announced that it had fully repaid its outstanding Maker Protocol (MKR) debt.

Celsius is among several crypto yield platforms on the brink of insolvency after historic losses across multiple positions. Forced selling on leveraged positions by exchanges and decentralized finance (DeFi) apps has accelerated the recent fall in cryptocurrency prices.

Currently, traders are facing a mixed feeling between the possible contagion impacts and their optimism that the $19,000 support is strengthening. For this reason, analyzing derivatives data is key to understanding whether investors are pricing the likelihood of a market downturn higher.

Bitcoin futures premium turns slightly positive

Retail traders generally avoid quarterly futures contracts because of their fixed settlement date and price difference from spot markets. However, the biggest advantage of contracts is the absence of a fluctuating financing rate; hence the prevalence of arbitration offices and professional traders.

These fixed-month contracts tend to trade at a slight premium to spot markets, as sellers demand more money to delay settlement longer. This situation is technically known as “contango” and is not exclusive to crypto markets. Thus, futures should trade at a 5-10% annualized premium in healthy markets.

Annualized 3-month Bitcoin futures premium. Source: Laevitas

The annualized Bitcoin futures premium turned negative on June 28, indicating weak demand from leveraged buyers. Still, the bearish pattern did not last long as the indicator moved into the positive zone on July 4th.

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Options traders remain skeptical of every price pump

To rule out externalities specific to the Bitcoin futures instrument, traders should also analyze options markets. For example, the 25% delta skew shows when arbitrage offices overcharge for upside or downside protection.

Option traders give higher odds for a price increase during bull markets, causing the bias indicator to drop below -12%. Meanwhile, a market’s general sense of fear induces a positive bias of 12% or more.

Bitcoin options 30 days 25% delta skew: Source: Laevitas

June 18 marked the highest ever 30-day delta skew record, typical of extreme bear markets. Still, the current bias level of 16% shows investors’ reluctance to provide downside protection, a fact reflected in the overpricing of put options.

Contagion is still a threat adding pressure to the market

It’s hard to say if $17,580 was the cycle low, but some traders attribute the move to Three Arrows Capital’s inability to meet its margin calls.

Some traders are calling for a “generational bottom,” but there is still a long way to go before investors turn bullish as Bitcoin remains stuck in a descending triangle formation.

On the one hand, Bitcoin derivatives metrics show a modest improvement since June 30. On the other hand, investors remain wary of further contagion from such a prominent venture capitalist and crypto asset manager.

Sometimes the best trade is to wait for clearer market structure and avoid leverage at all costs, no matter how certain you are of a cycle bottom.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.