Bitcoin (BTC) faced a 9% correction in the early hours of September 19 as the price dropped to $18,270. This level was the lowest in three months, even though the price quickly bounced back above $19,000. However, pro traders took their stand and were unwilling to take losses, as measured by derivatives contracts.
The reason behind the crash is difficult to pin down, but some say that United States President Joe Biden’s interview on CBS’ “60 Minutes” raised concerns about a global war. Responding to whether US forces would defend Taiwan in the event of a China-led invasion, Biden replied: “Yes, if indeed, there was an unprecedented attack.”
Others cited China’s central bank to cut the borrowing cost of 14-day reverse repurchase agreements from 2.25% to 2.15%. The monetary authority is showing signs of weakness in the current market conditions by injecting more money to stimulate the economy amid inflationary pressures.
There is also pressure on the US Federal Reserve Committee meeting scheduled for September 21, which is expected to hike interest rates by 0.75% as central bankers scramble to ease inflationary pressures. As a result, the yield on 5-year Treasury notes rose to 3.70%, the highest level since November 2007.
Let’s look at crypto derivatives data to see if professional investors have changed their positions while bitcoin fell below $19,000.
9% crash had no effect on BTC derivatives metrics
Retail traders typically avoid quarterly futures because of their price difference from the spot markets, but they are a preferred tool for professional traders because they prevent the volatility of funding rates that often occurs in a perpetual futures contract.
The indicator should trade at a 4% to 8% annual premium in healthy markets to cover the costs and associated risks. Thus, one can safely say that derivatives traders have been bearish neutral for the past two weeks as the bitcoin futures premium has remained below 2% for the entire time.
More importantly, the shock on September 19 had no significant effect on the indicator, which is 0.5%. This data reflects the reluctance of professional traders to add leveraged short (bear) positions at current price levels.
Bitcoin options should also be analyzed to exclude specific externalities to the futures instrument. For example, a 25% delta skew is a clear sign when market makers and arbitrage desks are overcharging for a security above or below.
In bear markets, options investors give high chances for a price drop, causing the skew indicator to rise above 12%. On the other hand, the bullish trend moves the skew indicator below the negative 12%, which means there is a discount on the bearish put options.
The 30-day delta skew was near the 12% range since September 15, and indicated that options traders were less inclined to offer downside protection. The negative price move on September 19 was not enough to reverse those whale bearish, and the indicator is currently at 11%.
Bitcoin, Ethereum Crashes Continue as US 10-Year Treasury Yields Cross June Highs
may be down, but it depends on macroeconomic and global constraints
Derivatives metrics show that the September 19 bitcoin price drop was partly expected, which explains why the $19,000 support was recovered in less than two hours. Still, none of this will matter if the US Federal Reserve raises interest rates above consensus or if the energy crisis and political tensions cause stock markets to fall further.
Therefore, traders should continuously scan macroeconomic data and monitor the attitude of central banks before attempting to flag the last bottom of the current bear market. Currently, the chances of bitcoin price testing below $18,000 remain high, especially given the weak demand for leverage on BTC futures.
The views and opinions expressed here are those of Author and do not necessarily reflect the views of Cryptooshala. Every investment and trading move involves risk. You should do your own research when making a decision.
Credit : cointelegraph.com