Pro traders are equally pricing upside and downside risk instruments, indicating that the BTC price is caught in the middle of a tug-of-war.
The last time Bitcoin (BTC) closed above $45,000 on a daily basis was 66 days ago, whereas the current $39,300 level was first seen on Jan. 7, 2021. The price of BTC reached $69,000 on Nov. 10, 2021, after 13 months of boom and bust cycles.
The United States Securities and Exchange Commission (SEC) rejected the VanEck spot Bitcoin exchange-traded fund on November 12, 2020, and that was the start of it all. Despite the fact that the judgement was widely anticipated, the regulator was severe and straightforward in his explanation for the denial.
Surprisingly, on Nov. 10, 2021, about a year later, cryptocurrency markets surged to an all-time high market value of $3.11 trillion. Inflation in the United States, as measured by the CPI index, reached 6.2 percent, a 30-year high.
Inflation also had a detrimental impact on risk markets, as the Federal Reserve of the United States admitted on November 30, 2021 that inflation is more than simply a “transitory” issue and warned that tapering could happen sooner than planned.
On March 10, the United States Senate passed a $1.5 trillion deal, which is now awaiting President Joe Biden’s signature. The additional funds are the first since former President Donald Trump departed office.
Pro traders are not willing to hold leveraged longs, according to data.
Let’s look at Bitcoin’s futures and options market data to see how professional traders, such as whales and market makers, are positioned. The difference between longer-term futures contracts and current spot market levels is measured by the basis indicator.
The yearly premium on Bitcoin futures should be between 5% and 12% to compensate traders for “locking in” their money for two to three months until the contract expires. The figures below 5% are quite pessimistic, while the values above 12% are extremely bullish.
The following graph reveals that this metric fell below 5% on February 11 and has yet to show evidence of pro traders’ confidence.
Still, it’s not unreasonable to believe that a break of the $44,500 resistance would catch those investors off guard, resulting in a flurry of purchasing to cover short positions.
Further downside risk is less of a concern for option traders.
Bitcoin’s price is now hovering around $40,000, making it impossible to predict the market’s trajectory. When arbitrage desks and market makers overcharge for upside or downside protection, the 25 percent delta skew is a telltale sign.
The skew indicator will rise above 10% if those traders fear a Bitcoin price fall. The skew in broad excitement, on the other hand, is negative 10%. That is why the metric is regarded as the fear and greed metric among professional traders.
From February 28 to March 8, the skew indicator fluctuated between 7% and 11%, as shown above. These option traders were overcharging for downside protection by a large margin, even if they weren’t explicitly communicating fear.
The last three days have seen a significant improvement, and the 4 percent delta bias now indicates a more balanced position. There’s a comparable risk of unanticipated upward and downward price fluctuations in the BTC options markets.
For bulls, the mixed data from Bitcoin derivatives presents an intriguing opportunity. Long leverage chances are available at a low cost because to the cheap futures premium, and downside protection is at its lowest level in thirty days.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.