Bitcoin futures enter downgrade for the first time in a year

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Bitcoin (BTC)’s monthly chart so far is very bearish, and the level below $18,000 seen over the weekend was the lowest price seen since December 2020. The Bulls’ current hope hinges on whether to turn $20,000 to support, but derivatives metrics tell a completely different story as professional traders are still extremely skeptical.

BTC-USD 12 hour price in Kraken. Source: Trading View

It’s important to remember that the S&P 500 index fell 11% in June, and even multi-billion dollar companies like Netflix, PayPal and Caesars Entertainment corrected with losses of 71%, 61% and 57% , respectively.

The U.S. Federal Open Market Committee raised its benchmark interest rate by 75 basis points on June 15, and Federal Reserve Chairman Jerome Powell hinted that more aggressive tightening may be in store. as the monetary authority continues to struggle to rein in inflation. However, investors and analysts fear the move will increase the risk of a recession. According to a Bank of America note to clients published on June 17:

“Our worst fears around the Fed have been confirmed: they have fallen well behind the curve and are now playing a dangerous game of catch-up.”

Additionally, according to analysts at global investment bank JPMorgan Chase, the record total stablecoin market share within crypto “indicates oversold conditions and significant upside for crypto markets from here”. According to analysts, the lower percentage of stablecoins in the total crypto market capitalization is associated with limited crypto potential.

Currently, crypto investors are facing a mixed sentiment between recession fears and optimism about the $20,000 support gaining strength as stablecoins could eventually flow into Bitcoin and other crypto. -currencies. For this reason, analyzing derivatives data is valuable in understanding whether investors are pricing downside risks.

Bitcoin futures premium turns negative for the first time in a year

Retail traders generally avoid quarterly futures contracts because of their price difference from spot markets, but they are preferred instruments by professional traders because they avoid the perpetual fluctuation in the contract funding rate.

These fixed-month contracts typically trade at a slight premium to spot markets, as investors demand more money to hold settlement. This situation is not exclusive to crypto markets. Therefore, futures contracts should trade with an annualized premium of 5% to 12% in healthy markets.

Annualized 3-month Bitcoin futures premium. Source: Laevitas

The Bitcoin futures premium failed to breach the 5% neutral threshold, while the Bitcoin price firmly held the $29,000 support through June 11. Whenever this indicator fades or turns negative, it is an alarming bearish red flag signaling a situation known as a pullback.

To rule out futures-specific externalities, traders should also analyze Bitcoin options markets. For example, the 25% delta skew shows when Bitcoin market makers and arbitrage desks overcharge for upside or downside protection.

In bull markets, option investors give higher odds for a price pump, causing the bias indicator to drop below -12%. On the other hand, widespread panic in a market induces a positive bias of 12% or more.

Bitcoin options 30 days 25% delta skew: Source: Laevitas

The 30-day delta skew peaked at 36% on June 18, the highest record on record and typical of extreme bear markets. Apparently, the 18% rise in Bitcoin price since the low of $17,580 was enough to restore some confidence in derivatives traders. While the 25% skew indicator remains adverse to downside price risk, at least it is no longer at levels that reflect extreme aversion.

Analysts expect ‘maximum damage’

Some metrics suggest that Bitcoin may have bottomed out on June 18, especially as the $20,000 support gained strength. On the other hand, market analyst Mike Alfred made it clear that in his view, “Bitcoin is not done with liquidating the big players. They will bring it down to a level that will cause the most damage to the most overexposed players. like Celsius.

Until traders have a better view of the risk of contagion from the implosion of the Terra ecosystem, the possible insolvency of Celsius and the liquidity problems facing Three Arrows Capital, the odds of another Bitcoin price crash are high.

The views and opinions expressed herein 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 before making a decision.

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