Autor Cointelegraph By Marcel Pechman

A crumbling stock market could create profitable opportunities for Bitcoin traders

Some of the biggest companies in the world are expected to report their 2Q earnings in October, including electric automaker Tesla on Oct. 18, followed by tech giants Meta and Microsoft on Oct. 24, Apple and Amazon on Oct. 26 and Google on Oct. 30. Currently, the possibility of an even more severe global economic slowdown is in the cards and lackluster profits could further add to the uncertainty.Given the unprecedented nature of the U.S. Federal Reserve tightening and mounting macroeconomic uncertainties, investors are afraid that corporate profitability will start to deteriorate. In addition, persistent inflation continues to force businesses to cut back on hiring and adopt cost-cutting measures.Strengthening the dollar is particularly punitive for U.S. listed companies because their products become more expensive in other countries and the reduced revenue brought in from overseas negatively impacts the bottom line. Google, for instance, is expected to grow revenues by less than 10%, down from a 40% growth in 2021.The companies that comprise the S&P 500 account for an aggregate $32.9 trillion in value and crypto investors expect some of those bets to enter Bitcoin (BTC) if earnings season fails to sustain a modest growth — signaling the stock market should continue to underperform.From one side, traders face the pressure from Bitcoin’s correlation to equities, but on the other hand, BTC’s scarcity might shine as inflation concerns arise. This possibly creates an immense opportunity for those betting on a BTC price rally, but extreme caution would also be needed for those opening positions.Risk averse traders could use futures contracts to leverage their long positions but they also risk being liquidated if a sudden negative price move occurs ahead of the corporate earnings calendar. Consequently, pro traders are more likely to opt for options trading strategies such as the “long butterfly.”By trading multiple call (buy) options for the same expiry date, traders can achieve gains thre times higher than the potential loss. This options strategy allows a trader to profit from the upside while limiting losses.It is important to remember that all options have a set expiry date, so the asset’s price appreciation must happen during the defined period.A cautionary approach to using call optionsBelow are the expected returns using Bitcoin options for the Oct. 28 expiry, but this methodology can also be applied using different time frames. While the costs will vary, the general efficiency will not be affected.Profit / Loss estimate. Source: Deribit Position BuilderThis call option gives the buyer the right to acquire an asset, but the contract seller receives (potential) negative exposure. The “long butterfly” strategy requires a short position using a call option, but the trade is hedged on both sides — limiting the exposure.To initiate the execution, the investor buys 13 Bitcoin call options with a $20,000 strike and sells 24 contracts of the $23,000 call. To finalize the trade, one would buy 10.5 BTC contracts of the $26,000 call options to avoid losses above such a level.Derivatives exchanges price contracts in BTC terms, and $19,222 was the price when this strategy was quoted.Using this strategy, any outcome between $20,690 (up 7.6%) and $26,000 (up 35.3%) yields a net profit — for example, the optimal 20% price increase to $23,000 results in a 1.36 BTC net gain, or $24,782 at current levels. Meanwhile, the maximum loss is 0.46 BTC or $8,382 if the price on Oct. 28 expiry happens below $20,000.The “long butterfly” strategy provides a potential gain that is 3 times larger than the maximum loss. Overall, the trade yields a better risk-to-reward outcome than leveraged futures trading, especially considering the limited downside. It certainly looks attractive for those expecting deteriorating business conditions for listed companies.It is worth highlighting that the only up front fee required is 0.46 BTC, which is enough to cover the maximum loss.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Upside capped at $980B total crypto market, according to derivatives metrics

It is becoming increasingly challenging to support a bullish short-term view for cryptocurrencies as the total crypto market capitalization has been below $1.4 trillion for the past 146 days. Furthermore, a descending channel initiated in late July has limited the upside after two strong rejections.Total crypto market cap, USD. Source: TradingViewThe 1% weekly negative performance in cryptocurrency markets was accompanied by stagnation in the S&P 500 stock market index, which remained basically flat at 3,650. Uncertainty continues to limit the eventual recovery as worsening global economic conditions have caused trans-Pacific shipping rates to plunge 75% versus the previous year, forcing ocean carriers to cancel dozens of sailings.Conflicting macroeconomic signals limit risk market upsideFrom one side, the global macroeconomic scenario improved after the United Kingdom’s government reverted plans to cut income taxes on Oct. 3. On the other hand, investors’ fear increased as global investment bank Credit Suisse’s credit default swaps reached their highest level on Oct. 3. Such instruments allow investors to protect against default, and their cost surpassed levels seen at the height of the 2008 financial crisis.Below is a list of the winners and losers of the crypto market capitalization’s 1% loss to $935 billion. Bitcoin (BTC) stood out with a 1% gain, which led its dominance rate to hit 41.5%, the highest since Aug. 5.Weekly winners and losers among the top-80 coins. Source: NomicsQuant (QNT) jumped 15% on speculation that its interoperable blockchain protocol would find adoption across governmental and regulatory bodies.Maker (MKR) gained 10.6% after MakerDAO launched a proposal to decrease the stability fee for the Curve protocol staked Ether (ETH) pool.UniSwap Protocol (UNI) gained 10.6% after UniSwap Labs, a startup contributing to the protocol, reportedly raised over $100 million from venture capitalists.Still, a single week of negative performance is not enough to interpret how professional traders are positioned. Those interested in tracking whales and market markers should analyze derivatives markets. Derivatives markets point to further downsideFor instance, perpetual futures, also known as inverse swaps, have an embedded rate usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.Accumulated 7-day perpetual futures funding rate on Oct. 3. Source: CoinglassPerpetual contracts reflected neutral sentiment as the accumulated funding rate was relatively flat in most cases over the past seven days. The only exception was Ether Classic (ETC), although a 0.50% weekly cost to maintain a short (bear) position should not be deemed relevant. Since Sept. 26, the yields on the U.S. Treasury’s 5-year notes declined from 4.2% to 3.83%, indicating investors are demanding fewer returns to hold extremely safe assets. The flight-to-quality movement shows how risk-averse traders are as mixed sentiment emerges from lackluster economic indicators and corporate earnings.For this reason, bears believe that the prevailing longer-term descending formation will continue in the upcoming weeks. In addition, professional traders’ lack of interest in leveraging cryptocurrency longs (buys) is evident in the neutral futures funding rate. Consequently, the current $980 billion market capitalization resistance should remain strong.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Pro traders don’t expect Bitcoin to break and hold $20,000 anytime soon

One hundred and eleven days have passed since Bitcoin (BTC) posted a close above $25,000 and this led some investors to feel less sure that the asset had found a confirmed bottom. At the moment, global financial markets remain uneasy due to the increased tension in Ukraine after this week’s Nord Stream gas pipeline incident. The Bank of England’s emergency intervention in government bond markets on Sept. 28 also shed some light on how extremely fragile fund managers and financial institutions are right now. The movement marked a stark shift from the previous intention to tighten economies as inflationary pressures mounted.Currently, the S&P 500 is on pace for a consecutive third negative quarter, a first since 2009. Additionally, Bank of America analysts downgraded Apple to neutral, due to the tech giant’s decision to scale back iPhone production due to “weaker consumer demand.” Lastly, according to Fortune, the real estate market has shown its first signs of reversion after housing prices decreased in 77% of United States metropolitan areas.Let’s have a look at Bitcoin derivatives data to understand if the worsening global economy is having any impact on crypto investors.Pro traders were not excited by the rally to $20,000Retail traders usually avoid quarterly futures due to their price difference from spot markets, but they are professional traders’ preferred instruments because they prevent the fluctuation of funding rates that often occurs in a perpetual futures contract.Bitcoin 3-month futures annualized premium. Source: LaevitasThe three-month futures annualized premium, as seen in the chart above, should trade at +4% to +8% in healthy markets to cover costs and associated risks. The chart above shows that derivatives traders have been neutral to bearish for the past 30 days while the Bitcoin futures premium remained below 2% the entire time. More importantly, the metric did not improve after BTC rallied 21% between Sept. 7 and 13, similar to the failed $20,000 resistance test on Sept. 27. The data basically reflects professional traders’ unwillingness to add leveraged long (bull) positions.One must also analyze the Bitcoin options markets to exclude externalities specific to the futures instrument. For example, the 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 12%. On the other hand, bullish markets tend to drive the skew indicator below negative 12%, meaning the bearish put options are discounted.Bitcoin 30-day options 25% delta skew: Source: LaevitasThe 30-day delta skew has been above the 12% threshold since Sept. 21 and it’s signaling that options traders were less inclined to offer downside protection. As a comparison, between Sept. 10 and 13, the associated risk was somewhat balanced, according to call (buy) and put (sell) options, indicating a neutral sentiment. The small number of futures liquidations confirm traders’ lack of surpriseThe futures and options metrics suggest that the Bitcoin price crash on Sept. 27 was more expected than not. This explains the low impact on liquidations. Despite the 9.2% correction from $20,300 to $18,500, a mere $22 million of futures contracts were forcefully liquidated. A similar price crash on Sept. 19 caused a total of $97 million in leverage futures liquidations.From one side, there’s a positive attitude since the 111-day long bear market was not enough to instill bearishness in Bitcoin investors, according to the derivatives metrics. However, bears still have unused firepower, considering the futures premium stands near zero. Had traders been confident with a price decline, the indicator would have been in backwardation.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.

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US Treasury yields are soaring, but what does it mean for markets and crypto?

Across all tradeable markets and currencies, U.S. Treasuries — government bonds — have significant influence. In finance, any risk measurement is relative, meaning, if one insures a house, the maximum liability is set in some form of money. Similarly, if a loan is taken from a bank, the creditor has to calculate the odds of the money not being returned and the risk of the amount being devalued by inflation.In a worst-case scenario, let’s imagine what would happen to the costs associated with issuing debt if the U.S. government temporarily suspended payments to specific regions or countries. Currently, there is over $7.6 trillion worth of bonds held by foreign entities and multiple banks and governments depend on this cash flow.The potential cascading effect from countries and financial institutions would immediately impact their ability to settle imports and exports, leading to further carnage in the lending markets because every participant will rush to reduce risk exposure. There are over $24 trillion in U.S. Treasuries held by the general public, so participants generally assume that the lowest risk in existence is a government-backed debt title.Treasury yield is nominal, so mind the inflationThe yield that is widely covered by the media is not what professional investors trade, because each bond has its own price. However, based on the contract maturity, traders can calculate the equivalent annualized yield, making it easier for the general public to understand the benefit of holding bonds. For example, buying the U.S. 10-year Treasury at 90 entices the owner with an equivalent 4% yield until the contract matures.U.S. Government Bonds 10-year yield. Source: TradingViewIf the investor thinks that the inflation will not be contained anytime soon, the tendency is for those participants to demand a higher yield when trading the 10-year bond. On the other hand, if other governments are running the risk of becoming insolvent or hyperinflating their currencies, odds are those investors will seek shelter in U.S. Treasuries.A delicate balance allows the U.S. government bonds to trade lower than competing assets and even run below the expected inflation. Although inconceivable a few years ago, negative yields became quite common after central banks slashed interest rates to zero to boost their economies in 2020 and 2021.Investors are paying for the privilege of having the security of government-backed bonds instead of facing the risk from bank deposits. As crazy as it might sound, over $2.5 trillion worth of negative-yield bonds still exist, which does not consider the inflation impact.Regular bonds are pricing higher inflationTo understand how disconnected from reality the U.S. government bond has become, one needs to realize that the 3-year note’s yield stands at 4.38%. Meanwhile, consumer inflation is running at 8.3%, so either investors think the Federal Reserve will successfully ease the metric, or they are willing to lose purchasing power in exchange for the lowest risk asset in the world.In modern history, the U.S. has never defaulted on its debt. In simple terms, the debt ceiling is a self-imposed limit. Thus, the Congress decides how much debt the federal government can issue.As a comparison, an HSBC Holdings bond maturing in August 2025 is trading at a 5.90% yield. Essentially, one should not interpret the U.S. Treasury yields as a reliable indicator for inflation expectation. Moreover, the fact that it reached the highest level since 2008 holds less significance because data shows investors are willing to sacrifice earnings for the security of owning the lowest risk asset.Consequently, the U.S. Treasury yields are a great instrument to measure against other countries and corporate debt, but not in absolute terms. Those government bonds will reflect inflation expectations, but could also be severely capped if the generalized risk on other issuers increases.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.

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Bitcoin holds $19K, but volatility expected as Friday's $2.2B BTC options expiry approaches

This week, the $20,000 resistance is proving to be stronger than expected and even after Bitcoin (BTC) price rejected this level on Sept. 27, BTC bulls still have reasons not to give up. According to the four-month-long descending triangle, as long as the $18,500 support holds, Bitcoin price has until late October to determine whether the downtrend will continue.Bitcoin/USD 1-day price index. Source: TradingViewBitcoin bulls might have been disappointed by the lackluster price performance as BTC has failed multiple times to break above $20,000, but macroeconomic events might trigger a rally sooner than expected.Some analysts point to the United Kingdom’s unexpected intervention in the bond market as the breaking point of the government’s debt credibility. On Sept. 28, the Bank of England announced that it would begin the temporary purchase of long-dated bonds to calm investors after a sharp yield increase, the highest since 1957.To justify the intervention, the Bank of England stated, “were dysfunction in this market to continue or worsen, there would be a material risk to U.K. financial stability.” Taking this measure is diametrically opposite to the promise of selling $85 billion in bond holdings within 12 months. In short, the government’s credibility is being questioned and as a result, investors are demanding much higher returns to hold U.K. debt.The impact of the government’s efforts to curb inflation are beginning to impair corporate revenues and according to Bloomberg, Apple recently backed off plans to increase production on Sept. 27. Amazon, the world’s biggest retailer, is also estimated to have shuttered plans to open 42 facilities, as per MWPVL International Inc.That is why the $2.2 billion Bitcoin (BTC) monthly options expiry on Sept. 30 will put a lot of price pressure on the bulls, even though thebears seem slightly better positioned as Bitcoin attempts to hold on to $19,000.Most of the bullish bets were placed above $21,000Bitcoin’s rally toward the $22,500 resistance on Sept. 12 gave the bulls the signal to expect a continuation of the uptrend. This becomes evident because only 15% of the call (buy) options for Sept. 30 have been placed at $21,000 or lower. This means Bitcoin bears are better positioned for the expiry of the $2.2 billion in monthly options.Bitcoin options aggregate open interest for Sept. 30. Source: CoinGlassA broader view using the 1.49 call-to-put ratio shows a skewed situation with bullish bets (calls) open interest at $1.26 billion versus the $850 million put (sell) options. Nevertheless, as Bitcoin currently stands near $19,000 and bears have a dominant position.If Bitcoin price remains below $20,000 at 8:00 am UTC on Sept. 30, only $37 million worth of these call (buy) options will be available. This difference happens because there is no use in the right to buy Bitcoin at $20,000 or $21,000 if it trades below that level on expiry.Bears could pocket a $350 million profitBelow are the four most likely scenarios based on the current price action. The number of options contracts available on Sept. 30 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:Between $18,000 and $19,000: 500 calls vs. 19,800 puts. The net result favors bears by $350 million.Between $19,000 and $20,000: 2,000 calls vs. 16,000 puts. The net result favors bearish bets by $270 million.Between $20,000 and $21,000: 5,900 calls vs. 12,700 puts. The net result favors bears by $135 million.Between $21,000 and $22,000: 10,100 calls vs. 11,300 puts. The net result is balanced between bulls and bears.This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.Regulatory pressure could complicate matters for Bitcoin bullsBitcoin bulls need to push the price above $21,000 on Sept. 30 to balance the scales and avoid a potential $350 million loss. However, Bitcoin bulls seem out of luck since the U.S. Federal Reserve chairman called for “crypto activities” regulation on Sept. 27, alerting “very significant structural issues around the lack of transparency.”If bears dominate the September monthly options expiry, that will likely add firepower for further bets on the downside for Bitcoin price. But, at the moment, there is no indication that bulls can turn the tables and avoid the pressure from the 4-month-long descending triangle.The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.

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