Bitcoin price bounces to $41.5K, but derivatives data shows traders lack confidence

Bitcoin
(BTC)
briefly
reached
its
lowest
level
in
five
months
this
Monday
at
$39,650,
marking
a
42.6%
drawdown
from
the
all-time
high
present
on
Nov.
22,
2021.
Some
argue
that
a
“crypto
winter”
has
already
begun
citing
the
$2.1
billion
leveraged-long
aggregate
crypto
futures
contracts
that
were
liquidated
over
the
past
seven
days.


Bitcoin/USD
price
at
FTX.
Source:
TradingView

The
descending
channel
guiding
Bitcoin’s
negative
performance
for
the
past
63
days
indicates
that
traders
should
expect
sub-$40,000
prices
by
February.

Confidence
from
investors
continued
to
decline
after
the
United
States
Federal
Reserve’s
December

Federal
Open
Market
Committee
session
on
Jan.
5
.
The
monetary
policy
authority
showed
commitment
to
decrease
its
balance
sheet
and
increase
interest
rates
in
2022.

On
Jan.
5,

Kazakhstan’s
political
turmoil

added
further
pressure
to
the
markets.
The
country’s
internet
was
shut
down
amid
protests,
causing
Bitcoin’s
network
hashrate
to
tumble
13.4%.

Futures
traders
are
still
neutral

To
analyze
how
bullish
or
bearish
professional
traders
are,
one
should
monitor
the
futures
premium,
which
is
also
known
as
the
“basis
rate.”

The
indicator
measures
the
difference
between
longer-term
futures
contracts
and
current
market
levels.
A
5%-to-15%
annualized
premium
is
expected
in
healthy
markets,
which
is
a
situation
known
as
“contango.”

This
price
gap
is
caused
by
sellers
demanding
more
money
to
withhold
settlement
longer,
and
a
red
alert
emerges
whenever
this
indicator
fades
or
turns
negative,
which
is
a
scenario
known
as
“backwardation.”


Bitcoin
3-month
future
contracts
basis
rate.
Source:
Laevitas.ch

Notice
how
the
futures
market
premium
did
not
trade
below
7%
over
the
past
couple
of
months.
This
is
an
excellent
indicator,
considering
the
absence
of
Bitcoin
price
strength
during
this
period.

Options
traders
are
not
as
bullish

To
exclude
externalities
specific
to
the
futures
instrument,
one
should
also
analyze
the
options
markets.

The
25%
delta
skew
compares
similar
call
(buy)
and
put
(sell)
options.
This
metric
will
turn
positive
when
fear
is
prevalent
because
the
protective
put
options
premium
is
higher
than
similar
risk
call
options.

The
opposite
holds
when
greed
is
the
prevalent
mood,
which
causes
the
25%
delta
skew
indicator
to
shift
to
the
negative
area.


Deribit
Bitcoin
options
25%
delta
skew.
Source:
laevitas.ch

Readings
between
negative
8%
and
positive
8%
are
usually
deemed
neutral.
The
last
time
the
25%
delta
skew
indicator
entered
the
“fear”
range
at
10%
was
on
Dec.
6,
2022.


Related:




Bitcoin
drops
below
$40K
for
first
time
in
3
months
as
fear
set
to
‘accelerate’

Thus,
options
markets
traders
are
at
the
very
edge
of
the
neutral-to-bearish
sentiment
because
the
indicator
currently
stands
at
8%.
Moreover,
buying
protective
put
options
is
becoming
more
expensive,
so
market
markers
and
arbitrage
desks
are
not
confident
that
$39,650
was
the
bottom.

Overall,
the
sentiment
is
pessimistic
and
the
$2.1
billion
in
aggregate
futures
contracts
liquidations
signal
that
derivatives
traders’
longs
(buyers)
are
quickly
losing
confidence.
Only
time
will
tell
where
the
exact
bottom
is
but,
presently,
there
is
not
an
indication
of
strong
support
coming
from
pro
traders.


The
views
and
opinions
expressed
here
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.

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