The price of bitcoin bounced back to $41,500 Monday morning after dipping below the psychological $4000 mark earlier this month. However, traders are still unsure whether they should purchase bitcoins or not due to lack of confidence in derivatives markets which have shown little change since December 2017.
The “rate hike and crypto” is a topic that has been popular lately. The price of Bitcoin has bounced back to $41,500, but the derivative data shows traders lack confidence in the cryptocurrency.
Bitcoin (BTC) fell to $39,650 on Monday, indicating a 42.6 percent drop from the all-time high recorded on November 22, 2022. Some say that a “crypto winter” has already started, citing the $2.1 billion in leveraged long aggregate crypto futures contracts liquidated in the last seven days as evidence.
FTX’s Bitcoin/USD rate. TradingView is the source of this information.
The declining trend that has guided Bitcoin’s dismal performance for the last 63 days suggests that prices will fall below $40,000 by February.
Investor confidence continued to erode following the US Federal Reserve’s December FOMC meeting on January 5. In 2022, the monetary policy authority stated its intention to reduce its balance sheet and raise interest rates.
Kazakhstan’s political upheaval contributed to market pressure on January 5. Due to demonstrations, the country’s internet was shut down, causing Bitcoin’s network hashrate to drop 13.4 percent.
Futures traders remain unconcerned.
The futures premium, also known as the “basis rate,” may be used to determine how optimistic or bearish professional traders are.
The disparity between longer-term futures contracts and current market values is measured by this indicator. In robust markets, a 5 percent to 15% yearly premium is predicted, which is referred to as contango.
When this indication fades or goes negative, which is a circumstance known as “backwardation,” a red alarm appears.
The base rate for Bitcoin 3-month future contracts. Laevitas.ch is the source of this information.
It’s worth noting that the futures market premium hasn’t fallen below 7% in the last several months. Given the lack of Bitcoin price strength throughout this time, this is a fantastic signal.
Options traders are less optimistic.
To rule out futures-specific externalities, one need also look at the options markets.
The 25 percent delta skew compares call (buy) and put (sell) options that are comparable. When fear is prominent, this measure will become positive since the premium for protective put options is greater than for equivalent risk call options.
When greed is the dominant emotion, the 25 percent delta skew indicator shifts to the negative side.
Bitcoin options with a 25% delta skew from Deribit. laevitas.ch is the source of this information.
Neutral readings are those that fall within the negative and positive 8% range. On December 6, 2022, the 25 percent delta skew indicator reached the “fear” category at 10% for the first time.
Bitcoin falls below $40K for the first time in three months as worry ‘accelerates’
As a result, traders on the options markets are on the cusp of a neutral-to-bearish mindset since the indicator is now at 8%. Furthermore, since purchasing protective put options is getting increasingly costly, market makers and arbitrage desks are doubtful that $39,650 was the bottom.
Overall, the mood is bleak, and the $2.1 billion in aggregate futures contract liquidations indicate that derivatives traders’ longs (buyers) are rapidly losing faith. Only time will tell where the precise bottom is, but there is currently no evidence of substantial support from professional traders.
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 has some level of risk. When making a choice, you should do your own research.
The “cointelegraph price analysis” is a blog post that discusses the recent Bitcoin price bounce. The article also includes some data to show traders lack confidence in the cryptocurrency market.
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