Bitcoin (BTC) has been trading above $31,000 after its 24.3% rally from June 15-23, which caught many off guard. For the bears, that meant facing $165 million in short futures contract liquidations, but the unexpected rally also brought a degree of discomfort for investors using Bitcoin derivatives.
Inflation remains the biggest question mark for traditional markets, a point highlighted by the recent 50 basis point interest rate hike by the Bank of England, followed by similar moves in Norway and Switzerland, leading to the highest cost of capital in over a decade. for the region
In response to questions from lawmakers in the US House Financial Services Committee on June 21, Federal Reserve Chairman Jerome Powell, said that “the process of getting inflation back down to 2% has a long way to go” and reiterated that “almost all participants expect it to be appropriate to raise interest rates a bit more by the end of the year.”
According to According to JPMorgan strategists led by Marko Kolanovic, “the economy’s recent resilience may delay the onset of a recession,” so the impacts of the central bank’s tightening move are yet to be felt, “and ultimately , a recession is likely to be needed to bring inflation back to target.”
Investors are now wondering if Bitcoin has the strength to trade above the $30,000 resistance amid bearish pressure arising from a potential economic downturn and increased central bank activity aimed at curbing demand for capital.
Consequently, traders should closely monitor Bitcoin futures contract premiums and hedging costs using BTC options.
Bitcoin Derivatives Show Modest Improvement
Bitcoin quarterly futures they are popular with whales and arbitrage tables. However, these fixed-month contracts are generally trading at a slight premium in the spot markets, indicating that sellers are asking for more money to delay settlement.
As a result, BTC futures contracts in healthy markets should trade at a 5% to 10% annualized premium, a situation known as contango, which is not unique to crypto markets.
Demand for leveraged BTC longs rose slightly as the futures contract premium jumped to 4.3% on June 22 from 3.2% a week earlier, though it remains below the 5% neutral threshold.
Traders should also analyze the options markets to understand if the recent correction has made investors more bullish. The delta’s 25% slope is a telltale sign of when arbitrage desks and market makers are overcharging for upside or downside protection.
In summary, if traders anticipate a fall in the price of Bitcoin, the delta will rise above 7% and the phases of enthusiasm tend to have a reading of -7%.
The delta metric came full circle when it came out of “fear” mode on June 16 when Bitcoin price recaptured the $26,000 support. The gauge continued to improve through June 22, capping off the dovish sentiment of “greed” with a negative reading of 8%.
The absence of excessive optimism is a good sign
Typically, a futures basis of 4.3% and a negative delta of 8% would be considered neutral market indicators, but that is not the case given Bitcoin’s price rally of 21.5% between June 15-22. A certain amount of skepticism is healthy for buyers. the use of derivative contracts and opens space for greater use of leverage if necessary.
The heated legal battle between Binance and the US Securities and Exchange Commission presents a risk for BTC futures contracts. Decisions by the US District Court for the District of Columbia could severely affect the cryptocurrency market, as Binance has the largest market share in the spot and derivatives markets.
Uncertainty surrounding the regulatory environment for cryptocurrencies and the growing risks of an economic downturn are possible explanations for the lack of enthusiasm among Bitcoin derivatives traders.
Other than those external risks, there is no apparent driver to justify a strong BTC price correction, giving bulls just the right amount of optimism to maintain positive momentum.
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