Autor Cointelegraph By Marcel Pechman

Crypto derivatives data signals improving investor sentiment and a possible trend reversal

Crypto derivatives data signals improving investor sentiment and a possible trend reversal

Uverejnil používateľ | feb 6, 2022 |

This week the total crypto market capitalization rallied 10% to $1.68 trillion, which is a 25% recovery from the Jan. 24 bottom. It’s too early to suggest that the market has found a bottom but two key indicators — The Tether/CNY premium and CME futures basis — have recently flipped bullish, signaling that positive investor sentiment is backing the current price recovery.Total crypto market cap excluding stablecoins, in USD billion. Source: TradingViewTraders should not assume that the bear trend has ended by merely looking at price charts. For example, between Dec. 13 and Dec. 27, the sector’s total market capitalization bounced from a $1.9 trillion low to $2.33 trillion. Yet, the 22.9% recovery was completely erased within nine days as crypto markets tanked on Jan. 5.Bearish data suggests the Fed has less room for rate hikesEven with the current trend change, bears have reason to believe that the 3-month long descending channel formation has not been broken. For example, the Feb.4 rally could have reflected the recent negative macroeconomic data, including EuroZone retail sales 2% yearly growth in December, which was well below the 5.1% market expectation.Independent market analyst Lyn Alden recently suggested that the United States Federal Reserve could postpone interest rate hikes after disappointing U.S. employment data was released on Feb. 2. The ADP Research Institute also showed a contraction of 301,000 private-sector jobs in December, which is the worst figure since March 2020.Regardless of the reason for Bitcoin (BTC) and Ether (ETH) gaining 10% on Friday, the Tether (USDT) premium at OKX reached its highest level in four months. The indicator compares China-based peer-to-peer (P2P) trades and the official U.S. dollar currency. Peer-to-peer CNY/USDT vs. CNY/USD. Source: OKXExcessive cryptocurrency demand tends to pressure the indicator above fair value, or 100%. On the other hand, bearish markets tend to flood Tether’s market, causing a 4% or higher discount. Therefore, Friday’s pump had a significant impact on China-driven crypto markets.CME futures traders are no longer bearishTo further prove that the crypto market structure has improved, traders should analyze the CME’s Bitcoin futures contracts premium. The metric compares longer-term futures contracts and the traditional spot market price.It is an alarming red flag whenever that indicator fades or turns negative (backwardation) because it indicates that bearish sentiment is present.These fixed-calendar contracts usually trade at a slight premium, indicating that sellers are requesting more money to withhold settlement for longer. As a result, the 1-month futures should trade at a 0.5% to 1% annualized premium in healthy markets, a situation known as contango.BTC CME 1-month forward contract premium vs. Coinbase/USD. Source: TradingViewThe chart above shows how the indicator entered backwardation levels on Jan. 4 as Bitcoin moved below $46,000 and Friday’s move marks the first sentiment trend reversal in a month. Data shows that institutional traders remain below the “neutral” threshold as measured by the futures’ basis, but at least reject the bearish market structure formation. While the CNY/Tether premium might have shown a trend shift, the CME premium reminds us that there’s a lot of distrust in Bitcoin’s capacity to function as an inflationary hedge. Still, the lack of CME traders’ excitement could be exactly what BTC needs to further fuel the rally if the $42,000 resistance is broken over the weekend.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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This bullish Ethereum options trade targets $3.1K ETH price with zero liquidation risk

This bullish Ethereum options trade targets $3.1K ETH price with zero liquidation risk

Uverejnil používateľ | feb 6, 2022 |

Ether price (ETH) spent the last two months stuck in a rut and even the most bullish trader will admit that the possibility of trading above $4,400 in the next couple of months is dim. Of course, cryptocurrency traders are notoriously optimistic and it is not unusual for them to expect another $4,870 all-time high, but this seems like an unrealistic outcome.Despite the current bearish trend, there are still reasons to be moderately bullish for the next couple of months and using a “long condor with call options” strategy might yield a positive outcome.Options strategies allows the investor to set upside limitsOptions markets provide more flexibility to develop custom strategies and there are two instruments available. The call option gives the buyer upside price protection, and the protective put option does the opposite. Traders can also sell the derivatives to create unlimited negative exposure, similar to a futures contract.Ether options strategy returns. Source: Deribit Position BuilderThis long condor strategy has been set for the March 25 expiry and uses a slightly bullish range. The same structure can also be applied for bearish expectations, but this scenario assumes that most traders are looking for upside.Ether was trading at $2,677 when the pricing took place, but a similar result can be achieved starting from any price level.The first trade requires buying 5.14 ETH worth of $3,000 call options to create a positive exposure above this price level. Then, to limit gains above $3,500 the trader needs to sell 4.4 ETH contracts of the $3,500 call.To complete the strategy, the trader needs to sell 6.65 ETH contracts of the $4,000 call, limiting the gains above such a price level. Lastly, a $4,500 upside protection call for 5.91 ETH is needed to limit the losses if Ether unexpectedly skyrockets.The strategy aims for a healthy 3.2 to 1 profit to loss ratioThe strategy might sound complicated to execute, but the margin required is only 0.175 ETH, which is also the max loss. The potential net profit happens if Ether trades between $3,100 (up 15%) and $4,370 (up 63%).Traders should remember that it is also possible to close the position ahead of the March 25 expiry. In this strategy, the maximum gain occurs between $3,500 and $4,000 at 0.56 Ether, which is more than three times higher than the potential loss.Unlike futures trading, this strategy gives the holder peace of mind because there is no liquidation risk. It is also worth noting that most derivatives exchanges accept orders as low as 0.10 ETH contracts, meaning a trader could build the same strategy using a smaller amount.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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Bitcoin bulls may ignore Friday’s $730M options expiry by saving their energy for $40K

Bitcoin bulls may ignore Friday’s $730M options expiry by saving their energy for $40K

Uverejnil používateľ | feb 3, 2022 |

The past few months have been less than pleasant for Bitcoin (BTC) bulls, but they are not alone. Persistent comments from the United States Federal Reserve hint at plans to raise interest rates in 2022 and thi is causing investors to seek protection in inflation-protected bonds.The monetary authority signaled its intention to substantially raise the benchmark interest rate and they will also gradually reduce the monthly purchase of debt assets.Even though some crypto investors deem Bitcoin digital scarcity as inflationary protection, that does not change its volatility. In turn, it causes the asset price to move in tandem with risk markets.Bitcoin price at Coinbase, USD (right) vs. Russell 2000 index (left)The above chart shows Bitcoin price in blue stacked against the smaller U.S. listed companies, as measured by the Russell 2000 equity markets index. Unlike the S&P 500 or Dow Jones Industrial Index, this benchmark excludes those tech giants. Thus, the smaller companies are usually considered riskier and are more impacted when investors fear an economic downturn.However, the negative performance did not scare investors as the Canada-based Purpose Bitcoin ETF attracted over $38 million worth of Bitcoin this Tuesday, its third-largest daily inflow to date. The fund now holds 31,032 BTC, equivalent to $1.2 billion.Regardless of investors’ sentiment, Bitcoin bulls could face a $120 million loss if BTC price moves below $36,000 on Friday’s options expiry.$730 million in options expire on Feb. 4According to Friday’s options expiry open interest, Bitcoin bulls placed heavy bets between $40,000 and $44,000. These levels might seem optimistic right now, but Bitcoin was trading above $42,000 two weeks ago.Bitcoin options aggregate open interest for Feb. 4. Source: Coinglass.comAt first sight, the $430 million call (buy) options dominate the $300 million put (sell) instruments, but the 1.43 call-to-put ratio does not really tell the whole story. For example, the 14% price drop over the past two weeks wiped out most bullish bets.A call option gives the buyer a right to buy BTC at a fixed price at 8:00 am UTC on Feb. 4. However, if the market is trading below that price, there is no value in holding that derivative contract, so its value goes to zero.Therefore, if Bitcoin remains below $37,000 at 8:00 am UTC on Feb. 4, only $34 million of those call (buy) options will be available at the expiry.Bears will fight to keep Bitcoin below $37,000Here are the three most likely scenarios for Friday’s options expiry. The imbalance favoring each side represents the theoretical profit. In other words, depending on the expiry price, the active quantity of call (buy) and put (sell) contracts varies:Between $35,000 and $37,000: 950 calls vs. 4,210 puts. The net result is $120 million favoring the put (bear) instruments.Between $37,000 and $38,000: 1,650 calls vs. 3,300 puts. The net result favors bear instruments by $60 million.Between $38,000 and $39,000: 4,230 calls vs. 1,710 puts. The net result is balanced between call and put options.This crude estimate considers call options used in bullish bets and put options exclusively in neutral-to-bearish trades. However, this oversimplification disregards more complex investment strategies.Bulls need $38,000 to balance the scalesA mere 3% price pump from the current $36,900 level is enough for Bitcoin bulls to avoid a $120 million loss on the Feb. 4 options expiry. Still, the same rationale applies to Bitcoin bears because pinning BTC below $37,000 can easily cause them to secure a $120 million profit.Considering the short-term negative sentiment caused by tighter macroeconomic conditions, Bitcoin bulls should pace their energy for a sustainable recovery to $40,000 and higher instead of wasting efforts right now. Therefore, options markets data slightly favor the put (sell) options.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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Bitcoin price closes in on $40K, but pro traders are still skeptical

Bitcoin price closes in on $40K, but pro traders are still skeptical

Uverejnil používateľ | feb 1, 2022 |

The Bitcoin (BTC) daily price chart seems to be making a steady recovery pattern, but some concerning indicators are coming from derivatives markets. At the moment, the futures and options markets are showing a lack of confidence from Bitcoin pro traders, but there’s a positive spin to the data.Bitcoin price at Coinbase, USD. Source: TradingViewThe road to $40,000 seems uncomfortably predictable, and cryptocurrency traders usually call it “manipulation” when such price movements happen.If you #bitcoin around that region, just be careful.A picture speaks a thousands words and I think mine says it all.Make it or break it time around the corner for #btc. This weekend is weekly close & monthly close as well so expect volatility and manipulation.#Crypto pic.twitter.com/kPhDKAjupQ— @Maze (Will never DM 1st or Follow) (@_CryptoMaze_) January 28, 2022Regardless of the rationale behind Bitcoin’s price recovery, investors should analyze derivatives markets to understand how whales, market makers and arbitrage desks are positioned. While retail traders’ favorite instrument is the perpetual contract (inverse swaps), pro traders often opt for fixed-calendar futures and options. Although they are more complicated to trade, these derivatives offer more complex strategies.Liquidations are behind us, but so is the route to $69,000Data shows that there hasn’t been a relevant futures contract liquidation since Jan. 23. When leverage long (buyers) have their positions terminated, it accelerates the price correction, because derivatives exchanges need to sell those futures at market prices. Total crypto futures liquidations, USD. Source: CoinglassNotice how the last “big” forced position termination on longs was $290 million on Jan. 23. This partially explains why Bitcoin’s recovery was relatively tranquil over the past week. Still, the market is nowhere near being out of the water, considering that BTC is currently trading 44% below the $69,000 all-time high.Bitcoin 3-month futures annualized premium. Source: Laevitas.chThe Bitcoin futures annualized premium should run between 5% to 12% to compensate traders for “locking in” the money for two to three months until the contract expiry. Levels below 5% are extremely bearish, while the numbers above 12% indicate bullishness. The above chart shows that this metric dipped below 5% on Jan. 21 and hasn’t yet shown signs of confidence from pro traders. So the big question is: Is the glass half full? For example, if Bitcoin breaks the $42,000 resistance, some traders will likely be caught off guard, so there’s additional buying activity because no one wants to be left behind. Bitcoin futures markets are neutral, but options traders are skepticalCurrently, it’s a bit difficult to discern a direction in the market, but the 25% delta skew is a telling sign whenever arbitrage desks and market makers overcharge for upside or downside protection. If traders fear a Bitcoin price crash, the skew indicator will move above 10%. On the other hand, generalized excitement reflects a negative 10% skew. Bitcoin 30-day options 25% delta skew: Source: Laevitas.chAs displayed above, we’ve been near 10% for almost a week despite the 18% BTC price recovery since the $33,000 bottom. The options skew data shows that pro traders are still pricing higher odds for a market crash. Despite the not-so-positive indicator from Bitcoin options, these arbitrage desks and market makers will be forced to reverse bearish positions once the price breaks $42,000. However, considering that the futures premium did not show signs of desperation even as the market crashed 52% from the all-time high, the data provides a constructive view.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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2 key Bitcoin price metrics suggest BTC is primed to reclaim $40,000

2 key Bitcoin price metrics suggest BTC is primed to reclaim $40,000

Uverejnil používateľ | feb 1, 2022 |

Cryptocurrencies had a volatile week after Bitcoin’s (BTC) sudden crash to $33,000 on Jan. 24. However, the sharp 9% drop fully recovered within 8 hours after BTC price regained the $36,000 support.On Jan. 26, Bitcoin rallied to $38,960 but it could not sustain the level and corrected by 8.8% in the following 8 hours. When factoring in the recent ups and downs, Bitcoin managed to only gain a meager 1.6% over the past seven days.Even with the considerable price swings, the aggregate futures contracts liquidations were relatively low. Longs (buyers) had $570 million futures terminated, while shorts (sellers) faced $690 million. Data shows that Bitcoin futures represented 41% of the total $1.25 billion liquidations.Regulatory winds could be limiting BTC’s price recoveryThe total crypto market capitalization presented a modest 1.6% weekly increase, in line with Bitcoin’s performance.Total crypto market capitalization, USD billion. Source: TradingViewNotice how the Jan. 24 price is forming higher lows and currently shows support at $1.75 trillion. Even with the price being 22% down in 2022, the total crypto market capitalization showed a healthy 12.5% bounce since the Jan. 24 low.Investors seem to be digesting this week’s regulatory news where United States Congressman Ted Budd submitted an amendment to scrub a bill provision allowing the U.S. Treasury to unilaterally prohibit certain financial transactions without public input.If passed in its current form, the America COMPETES Act of 2022 would result in a significant blow to the cryptocurrency industry, as Coin Center’s executive director Jerry Brito stated.Investors were negatively impacted by news that the U.S. White House is reportedly preparing an executive order on crypto to make government agencies conduct risk analysis on cryptocurrency as a national security threat. Metaverse tokens decoupled after last week’s Apple newsSteady bearish newsflow might have been the cause for cryptocurrencies’ recent price action but there were some stellar performances from Metaverse tokens. Top weekly winners and losers on Jan. 31. Source: NomicsApple (AAPL) CEO, Tim Cook, said in an investors’ call on Jan. 27 that metaverse applications have a lot of potential and that his company is investing in augmented reality developments on its devices.The news was enough to catapult metaverse-related tokens by up to 36%, including Flow, The Sandbox (SAND), Decentraland (MANA), Enjin Coin (ENJ), and Arweare (AR).On the other hand, Terra (LUNA) was impacted after the Avalanche-based reserve currency Wonderland Money (TIME) announced that a pending proposal would determine whether the project closes up shop or not. As a result, the MIM stablecoin dipped below 1.00 and some speculate that this may have had a knock-on effect on Terra’s LUNA and UST token.Scalability and interoperability blockchain solutions Cosmos (ATOM), Fantom (FTM), and Harmony (ONE) presented negative performances after the Ethereum hash rate surpassed 1.11 PH/s, its highest level ever registered. A higher hash rate indicates that more miners are joining the network, which helps to cement blockchain security.Tether premium and CME futures showed improvementThe OKEx Tether (USDT) premium measures the difference between China-based peer-to-peer (P2P) trades and the official U.S. dollar. Figures above 100% indicate excessive demand for cryptocurrency investing. On the other hand, a 5% discount usually indicates heavy selling activity.OKEx USDT peer-to-peer premium vs. USD. Source: OKXThe Tether indicator continued to display strength as it stood above 99% over the past seven days. That is in stark contrast to three weeks ago when panic selling from China-based traders drove the indicator to a 4% discount.To confirm that the crypto market structure has improved, traders should analyze the CME’s Bitcoin futures contracts premium. This metric analyzes the difference between longer-term futures contracts to the current spot price in regular markets.Whenever this indicator fades or turns negative (backwardation), it suggests that there is bearish sentiment.BTC CME 2-month forward contract premium vs. Bitcoin/USD. Source: TradingViewThese fixed-month contracts usually trade at a slight premium, indicating that sellers request more money to withhold settlements for longer. As a result, futures should trade at a 0.5% to 2% premium in healthy markets, a situation known as contango.Notice how the indicator flirted with the backwardation from Jan. 18 to 24 as Bitcoin dipped below $42,000. However, as BTC showed signals that $33,000 could have been a local bottom, the futures markets recovered a healthy 0.5% premium.Considering that the aggregate cryptocurrency market capitalization is down 22% in 2022, the market structure looks primed for a recovery. Barring a significant change in these fundamentals, Bitcoin bulls are probably beginning to feel comfortable adding positions below $40,000.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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