The cryptocurrency market has been in a state of constant volatility and instability. The past few weeks have seen Bitcoin lose over 40% value, while other coins like XRP and EOS have experienced gains upwards of 90%. While crypto traders might expect the worst from these lows, many are deciding to take a hands-off approach for now.
The “btc price” is a cryptocurrency that has been on the decline. Pro traders have adopted a hands-off approach as the Bitcoin price explores new lows.
Bitcoin’s (BTC) recent 20% plunge in the last four days has sent the price to its lowest level in nine months, and although these fluctuations may seem unusual, many significant publicly traded firms and commodities have had similar corrections. Natural gas futures, for example, fell 15.5 percent in four days, while nickel prices fell 8% on May 9.
Multiple $10 billion and larger market capitalization corporations listed on US stock exchanges are also victims of the slump. Bill.com (BILL) lost 30% of its value, while Cloudflare (NET) lost 25.4 percent of its value. Dish Network (DISH) was also down 25.1 percent, while Ubiquiti (UI) was down 20.4 percent.
Consistently poor economic data suggests that a recession is on the way. Simultaneously, the Federal Reserve of the United States reversed its expansionary policies and now plans to shrink its balance sheet by $1 trillion. On May 5, Germany reported a 4.7 percent drop in manufacturing orders from the previous month. On the same day, unit labor expenses in the United States increased by 11.6 percent.
This negative macroeconomic situation may help explain why Bitcoin and risk assets are still correcting, but a deeper look at how professional traders are positioning themselves can also help.
The premium on bitcoin futures has settled at 2.5 percent.
Analysis of Bitcoin’s futures contracts premium, also known as the “basis rate,” might help determine if recent price behavior reflects top traders’ mood.
These fixed-calendar futures, unlike perpetual contracts, do not have a funding rate, hence their price will fluctuate significantly from conventional spot markets. When these experienced traders turn bearish, the 3-month futures contract trades at a 5% or lower annualized premium.
A neutral market, on the other hand, should show a 5% to 12% basis rate, demonstrating market players’ hesitancy to lock in Bitcoin for a low price until the deal settles.
Bitcoin futures premium for three months. http://laevitas.ch/
According to the above statistics, Bitcoin’s futures premium has remained below 5% since April 6, suggesting that futures market players are hesitant to build leverage long bets.
Despite the aforementioned statistics, the recent 20% price adjustment was not enough to push this indicator below the 2% barrier, which can be seen as a positive. Bulls have little cause to rejoice, but there are no indications of panic selling in the futures markets.
Options traders entered the “fear” zone even farther.
Traders should also examine the options markets to rule out externalities unique to futures contracts. The 25 percent delta skew, which compares similar call (buy) and put (sell) options, is the most basic and useful statistic.
In other words, when “fear” is prominent, the indicator will become positive because the premium for protective put options is larger than the premium for call (bullish) options. A negative 25% skew, on the other side, signals optimistic markets. Finally, values in the range of -8 percent to +8 percent are considered neutral.
Bitcoin 30-day options with a 25% delta skew from Deribit. http://laevitas.ch/
Bitcoin option traders have been expressing “fear” since BTC dropped below $42,500 on April 8, as seen in the chart above. Unlike futures markets, the major mood index for options has deteriorated over the last four days, with the 25 percent delta skew now at 14.5 percent.
To put things in perspective, the last time this options market’s “fear & greed” indicator touched 15% was on January 28, after Bitcoin price traded down 23.5% in 4 days.
Margin markets’ positive sentiment peaked.
Traders should look at margin markets as well. Borrowing cryptocurrency enables traders to leverage their positions and possibly improve their profits. A trader, for example, may borrow Tether (USDT) and utilize the funds to increase their Bitcoin exposure.
Borrowing Bitcoin, on the other hand, permits you to wager on its price falling. The balance between margin longs and shorts, however, is not always equal.
Margin lending ratio OKEx USDT/BTC Author: OKEx
The ratio has dropped from 24.5 on May 6 to 16.8 now, indicating that traders have been borrowing more Bitcoin lately. Professional traders are more confidence in Bitcoin’s price when the indicator is higher.
According to the USDT/BTC loan ratio, despite some recent Bitcoin borrowing activity aimed at speculating on a price drop, margin traders remain generally positive. Numbers over 5 usually indicate bullishness, and the current top of 24.5 was the highest in over 6 months.
Bitcoin traders are concerned about a deeper downturn as macroeconomic data worsen, according to derivatives metrics. However, investors are also anticipating a possible collapse in conventional markets, so Bitcoin’s 20% drop is only a reflection of wider risk assets.
On the plus side, there are no evidence of leveraged short (negative) bets utilizing margin or futures, suggesting that sellers aren’t convinced at present prices.
The author’s thoughts and opinions are purely his or her own and do not necessarily represent those of Cointelegraph. Every investing and trading decision is fraught with danger. When making a choice, you should do your own research.
The “rate hike and crypto” is a blog post that discusses how the market has been effected by recent events. The blog states that pro traders are adopting a hands-off approach when it comes to trading cryptocurrencies.
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