Značka: derivatives

Bears target new lows for Ethereum as Friday’s $1.1B options expiry approaches

Ether (ETH) price tumbled below the $3,000 support on Jan. 21 as regulatory uncertainty continues to weigh down the sector and rumors that the United States Securities and Exchange Commission is reviewing DeFi’s high-yield crypto lending products continue to circulate. On Jan. 27, the Russian Finance Ministry submitted a crypto regulatory framework for review. The proposal suggests that crypto operations are carried out within the traditional banking infrastructure and that mechanisms to identify traders’ personal data are included.Further bearish news came as Ryan Korner, a top special agent from the United States Internal Revenue Service (IRS) Criminal Investigation’s Los Angeles field office, issued negative remarks during a virtual event hosted by the USC Gould School of Law. According to Ryan, crypto is the “future,” but ”fraud and manipulation are still rampant in the space.”Ether bulls are trying to determine whether the Jan. 24 drop to $2,140 was the final bottom for the current downtrend. This 47.5% correction in 30 days caused an aggregate of $1.58 billion in long futures contracts to be liquidated.Ether/USD price at FTX. Source: TradingViewNotice how Ether’s price has been downtrending for 75 days, respecting a channel that currently holds $2,200 as a support level. On the other hand, a 19% price increase from the current $2,500 to the $3,000 resistance would not necessarily mean a trend reversal.Curiously, call (buy) option instruments vastly dominate Friday’s $1.1 billion expiry, but bears are better positioned after Ether price stabilized below $3,000.Ether options aggregate open interest for Jan. 28 expiry. Source: CoinGlassA broader view using the call-to-put ratio shows an 82% advantage to Ether bulls because the $680 million call (buy) instruments have a larger open interest versus the $410 million put (sell) options. However, the 1.82 call-to-put indicator is deceptive because the price drop below $3,000 caused most bullish bets to become worthless.For example, if Ether’s price remains below $2,500 at 8:00 am UTC on Jan. 28, only $57 million worth of those call (buy) options will be available. That effect happens because there is no value in the right to buy Ether at $2,500 if it is trading below this level.Data suggests bulls are set for a significative lossBelow are the three most likely scenarios based on the current price action. The number of options contracts available on Friday for bulls (call) and bear (put) instruments vary depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:Between $2,200 and $2,400: 3,200 calls vs. 121,500 puts. The net result is $270 million favoring the put (bear) instruments.Between $2,400 and $2,700: 19,500 calls vs. 95,500 puts. The net result favors bears by $190 million.Between $2,700 and $2,900: 34,700 calls vs. 73,400 puts. The net result favors the put (bear) options by $110 million.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.For instance, a trader could have sold a call option, effectively gaining a negative exposure to Ether above a specific price. But unfortunately, there’s no easy way to estimate this effect.Bears will try to hold ETH below $2,400Ether bears need a gentle push below $2,400 to score a $270 million profit on Friday. On the other hand, bulls would need an 8.4% price recovery from the current $2,500 to reduce their loss by 58%.Considering the bearish regulatory newsflow, Ether bulls are unlikely willing to add more risk right now. Therefore, bulls should concentrate their efforts to partially salvage this defeat by keeping Ether price above $2,500, resulting in a $170 million loss.January seems to have given Ether bears the upper hand in keeping the pressure on the price in the short term.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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Derivatives data suggests that Bitcoin’s $39K bounce was a mere blip

Bitcoin (BTC) bulls are probably quite disappointed with how the start of 2022 has shaped up, especially since the cryptocurrency plunged over 20% in the first 25 days of the year. Even more shocking is the fact that the supposed $32,930 bottom on Jan. 21 was the lowest level BTC price had seen in six months, while equity markets as measured by the S&P500 reached an all-time high on Jan. 4. The sell-off in risk markets accelerated after the U.S. Federal Reserve announced its plan to raise interest rates in the coming months, a measure intended to hold back the escalating inflation. For example, Invesco China Technology ETF (CQQQ) traded below $58 on Jan. 22, which was a 20% drop from its peak on Nov. 12.Regulatory uncertainties continue to weigh on the sector as United States Congressman Patrick McHenry called the “inconsistent treatment and jurisdictional uncertainty” on crypto as a problem. McHenry essentially suggested that Congress should take crypto regulation away from executive agencies and courts.Bitcoin price recovered, but bulls are still in troubled watersBitcoin bulls have little to celebrate after the 12% partial recovery to $38,100 on Jan. 26. First, BTC price is down 35% over the past two months, and more importantly, if Bitcoin trades below $38,000 by the Jan. 28 monthly options expiry bears are set to profit by $350 million.Bitcoin options aggregate open interest for Jan. 28. Source: CoinglassAt first sight, the $1.52 billion call (buy) options overshadow the $760 million in put options, but the 1.96 call-to-put ratio is deceptive because the recent price drop will likely wipe out most of the bullish bets.For example, if Bitcoin’s price remains below $38,000 at 8:00 am UTC on Jan. 28, only $72 million worth of those call (buy) options will be available at the expiry. There is no value in the right to buy Bitcoin at $38,000 if BTC is trading below that price.Bears bag a $315 million profit even with Bitcoin near $39,000Here are the three most likely scenarios for the $2.3 billion options expiry on Jan. 14. The imbalance favoring each side represents the theoretical profit. In practice, depending on the expiry price, the quantity of call (buy) and put (sell) contracts becoming active varies:Between $35,000 and $37,000: 660 calls vs. 13,550 puts. The net result is $450 million favoring the put (bear) options.Between $37,000 and $39,000: 1,300 calls vs. 13,100 puts. The net result is $315 million favoring the put (bear) options.Between $39,000 and $41,000: 3,710 calls vs. 8,170 puts. The net result favors bears by $180 million.This crude estimate considers call options being used in bullish bets and put options exclusively in neutral-to-bearish trades. However, this oversimplification disregards more complex investment strategies.For instance, a trader could have sold a call option, effectively gaining a negative exposure to Bitcoin above a specific price. But unfortunately, there’s no easy way to estimate this effect.$40,000 is still a stretchIt might seem relatively easy to move Bitcoin price up by 3% and bring the expiry price above $39,000 on Friday’s expiry. However, considering the negative news flow regarding regulation and monetary policy tightening, bulls will likely have a hard time pulling it off.Therefore, if the current short-term negative sentiment prevails, bears could easily pressure the price down 3% from the current $38,100 down to $36,900 and secure a $450 million profit. In short, bears completely dominate Jan. 28 monthly options expiry, giving little hope for a $40,000 price recovery in the short-term.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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Is the bottom in? Data shows Bitcoin derivatives entering the ‘capitulation’ zone

Analysts love to issue price predictions and it seems that nine out of 10 times they are wrong. For example, how many times did analysts say “we will never see Bitcoin back at X price again,” only to see it plunge well below that level a few months later? It doesn’t matter how experienced a person is or how connected in the industry. Bitcoin’s (BTC) 55% volatility must be taken seriously and the impact this has on altcoins is usually stronger during capitulation-like movements.I was undeniably wrong about how much crypto could fall from macro contagion. I remain bullish on the space as a whole and think it is the most important mega-trend of our times.I joined CT during 2018 and I will be here with you guys in the coming yrs, bull or bear.— Zhu Su (@zhusu) January 24, 2022For those unfamiliar with the case, on Dec. 7, Zhu Su’s Three Arrows Capital acquired $676.4 million worth of Ether (ETH) after its price collapsed 20% over 48 hours. Zhu went as far as saying that he would continue to buy “any panic dump,” despite acknowledging that Ethereum fees were unsuitable for most users.To understand whether there is still an appetite for bearish bets and how pro traders are positioned, let’s take a look at Bitcoin’s futures and options market data.Futures traders are unwilling to shortThe basis indicator measures the difference between longer-term futures contracts and the current spot market levels. A 5% to 15% annualized premium is expected in healthy markets and this price gap is caused by sellers demanding more money to withhold settlement longer.On the other hand, a red alert emerges whenever this indicator fades or turns negative, a scenario known as “backwardation.”Bitcoin 3-month futures basis rate. Source: Laevitas.chNotice how the indicator held the 5% threshold despite the 52% price correction in 75 days. Had pro traders effectively entered bearish positions, the basis rate would have flipped closer to zero or even negative. Thus, data shows a lack of appetite for short positions during this current corrective phase.Options traders are still in the “fear” zoneTo exclude externalities specific to the futures instrument, traders should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.The opposite holds when greed is prevalent, causing the 25% delta skew indicator to shift to the negative area. Bitcoin 30-day options 25% delta skew. Source: Laevitas.chThe 25% skew indicator flipped to the “fear” area as it moved above 10% on Jan. 21. That 17% peak level was last seen in early July 2021, and curiously, Bitcoin was trading at $34,000 back then.This indicator might be interpreted as bearish when considering that arbitrage desks and market makers are overcharging for downside protection. Still, this metric is backward-looking and usually predicts market bottoms. For example, just two weeks after the skew indicator peaked at 17% on July 5, Bitcoin price bottomed at $29,300.Correlation with traditional markets is not so relevantIt is worth noting that Bitcoin has been on a downtrend for the past 75 days, and this is before the Federal Reserve’s tightening discourse on Dec. 15. Moreover, the increased correlation with traditional markets does not explain why the S&P 500 index peaked on Jan. 4, while Bitcoin was already down 33% from the $69,000 all-time high.Considering the lack of bears’ appetite to short BTC below $40,000 and options traders finally capitulating, Bitcoin shows little room for the downside. Furthermore, Bitcoin futures liquidation over the past week totalled $2.35 billion, which significantly reduced buyers’ leverage. Of course, there are no guarantees that $32,930 was the final bottom, but short sellers will likely wait for a bounce before entering bearish positions.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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Data shows Bitcoin traders’ neutral view ahead of Friday’s $750M BTC options expiry

Bitcoin (BTC) has bounced 11% from the $39,650 low hit on Jan. 10 and, currently, the price is battling with the $44,000 level. There are multiple explanations for the recent weakness, but none of them seem sufficient enough to justify the 42% correction that took place since the Nov. 10 all-time high at $69,000.At the time (Nov. 12), negative remarks from the U.S. Securities and Exchange Commission (SEC) were issued at the rejection of VanEck’s physical Bitcoin exchange-traded fund (ETF). The regulatory body cited the inability to avoid market manipulation due to unregulated exchanges and heavy trading volume based on Tether’s (USDT) stablecoin.Then, on Dec. 17, the U.S. Financial Stability Oversight Council recommended that state and federal regulators review regulations and the tools that could be applied to digital assets. On Jan. 5, BTC price corrected again after the Federal Reserve’s December Federal Open Market Committee (FOMC) session, which confirmed plans to ease debt buyback and likely increase interest rates.Regarding derivatives markets, if Bitcoin price trades below $42,000 by the Jan. 14 expiry, bears will have a $75 million net profit on their BTC options.Bitcoin options aggregate open interest for Jan. 14. Source: CoinglassAt first sight, the $455 million call (buy) options are overshadowing the $295 million puts, but the 1.56 call-to-put ratio is deceptive because the 14% price drop over the last three weeks will likely wipe out most of the bullish bets.If Bitcoin’s price remains below $44,000 at 8:00 am UTC on Jan. 14, only $44 million worth of those call (buy) options will be available at the expiry. There is no value in the right to buy Bitcoin at $44,000 if BTC is trading below that price.Bears might bag a $75 million profit if BTC is below $42,000Here are the four most likely scenarios for the $750 million options expiry on Jan. 14. The imbalance favoring each side represents the theoretical profit. In practice, depending on the expiry price, the quantity of call (buy) and put (sell) contracts becoming active varies:Between $40,000 and $43,000: 480 calls vs. 2,220 puts. The net result is $75 million favoring the put (bear) options.Between $43,000 and $44,000: 1,390 calls vs. 1,130 puts. The net result is balanced between call and put options.Between $44,000 and $46,000: 1,760 calls vs. 660 puts. The net result is $50 million favoring the call (bull) options.Between $46,000 and $47,000: 1,220 calls vs. 520 puts. The net result is $125 million favoring the call (bull) options.This crude estimate considers put options being used in neutral-to-bearish bets and call options exclusively in bullish trades. However, this oversimplification disregards more complex investment strategies.For instance, a trader could have sold a put option, effectively gaining a positive exposure to Bitcoin above a specific price. But, unfortunately, there’s no easy way to estimate this effect.Related: Traders say Bitcoin run to $44K may be a relief bounce, citing a repeat of December’s ‘nuke’ Bulls need $46,000 for a decent winThe only way bulls can score a significant gain on the Jan. 14 expiry is by sustaining Bitcoin’s price above $46,000. However, if the current short-term negative sentiment prevails, bears could easily pressure the price down 4% from the current $43,800 and raise the profit by up to $75 million if Bitcoin price stays below $42,000.Currently, options markets seem balanced, giving bulls and bears equal odds for Friday’s expiry.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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Ethereum futures and options data reflects traders’ mixed emotions on $3.2K ETH price

Ether (ETH) has been an emotional rollercoaster over the past three months primarily because its price rallied twice. First, it peaked at $4,870 on Nov. 10 and at $4,780 on Dec. 1. However, the double top was quickly followed by a harsh rejection, which led to $490 million in long futures contract liquidations in 48 hours.Once again, hope was instilled on Dec. 8 after Ether commenced to rally 28.5% in four days to retest the $4,400 support. Soon after, the downtrend continued, leading to the $2,900 bottom on Jan. 10, which was the lowest ETH price seen in 102 days. This low marked a 40% low from the $4,870 all-time high and caused traders to question whether a bear market had been set.Ether/USD price at FTX. Source: TradingViewOne might argue that Ether is simply following Bitcoin’s 42% correction from the Nov. 10 all-time high at $69,000 and the most recent pullback has partially been attributed to the United States Federal Reserve’s potential tighter monetary policies and Kazakhstan’s political turmoil impact on mining.This simplistic analysis leaves behind some crucial developments, such as China’s official digital yuan wallet becoming the most downloaded app in local mobile app stores on Jan. 10. Furthermore, a pilot version of the nation’s central bank digital currency (CBDC) is being used in select cities and it also became available for download on app stores on Jan. 4.Even with the fiscal policy pressure and negatively skewed price action, traders should still monitor the futures contracts premium (basis rate) to analyze how bullish or bearish professional traders are.Futures traders are becoming more anxiousThe basis indicator measures the difference between longer-term futures contracts and the current spot market levels. A 5% to 15% annualized premium is expected in healthy markets. This price gap is caused by sellers demanding more money to withhold settlement longer.However, a red alert emerges whenever this indicator fades or turns negative, a scenario known as “backwardation.”Ether 3-month futures basis rate. Source: Laevitas.chNotice how the indicator peaked at 20% on Nov. 8 as Ether surpassed $4,800, but then gradually faded away to an 8% low on Dec. 5 after ETH flash crashed to $3,480. More recently as Ether touched a $2,900 low on Jan. 10, the basis rate moved to 7%, which is its lowest level in 132 days.Consequently, professional Ether traders are not comfortable despite the 10% recovery to $3,200 on Jan. 11.Options traders recently flipped neutralTo exclude externalities specific to the futures instrument, one should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.The opposite holds when greed is the prevalent mood causing the 25% delta skew indicator to shift to the negative area.Ether 30-day options 25% delta skew. Source: TradingViewWhen market makers and whales are bearish, the 25% delta skew indicator shifts to the positive area, and readings between negative 8% and positive 8% are usually deemed neutral.Related: World’s biggest podcaster, Joe Rogan, has a ‘lot of hope’ for cryptoEther option traders entered “fear” mode on Jan. 8 as the 25% delta skew surpassed the 8% threshold, peaking at 11% two days later. However, the quick bounce from the $2,900 low instilled confidence in Ether options traders and also moved the options “fear and greed” metric to a meager 3%.At the moment, there is not a consensus sentiment-wise from Ether traders because futures markets indicate slight discontent and options arbitrage desks and whales have recently abandoned their bearish stance. This makes sense because the current $3,200 price is still reflecting the recent 15% weekly drop and is far from exciting.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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Ether drops below $3,800, but traders are unwilling to short at current levels

Even though Ether (ETH) reached a $4,870 all-time high on Nov. 10, bulls have little reason to celebrate. The 290% gains year-to-date have been overshadowed by Dec.’s 18% price drop. Still, Ethereum’s network value locked in smart contracts (TVL) increased nine-fold to $155 billion.Looking at the past couple of months’ price performance chart doesn’t really tell the whole story, and Ether’s current $450 billion market capitalization makes it one of the world’s top 20 tradable assets, right behind the two-century-old Johnson & Johnson conglomerate.Ether/USD price at FTX. Source: TradingView2021 should be remembered by the decentralized exchanges’ sheer growth, whose daily volume reached $3 billion, a 340% growth versus the last quarter of 2020. Still, crypto traders are notoriously short-sighted, accentuating the impact of the ongoing downtrend channel.Derivatives markets do not reflect panic sellingTo understand whether bearishness has been instilled, one must analyze the futures’ funding rate. Perpetual contracts, also known as inverse swaps, have an embedded rate usually charged every eight hours. Those measures are established 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, and this causes the funding rate to turn negative.Ether perpetual futures 8-hour funding rate. Source: Coinglass.comAs depicted above, the eight-hour fee has been ranging near zero in December, indicating a balanced leverage demand from buyers and sellers. Had there been some panic moments, it would have been reflected on such derivatives indicators.Top traders are increasing their bullish betsExchange-provided data highlights traders’ long-to-short net positioning. By analyzing every client’s position on the spot, perpetual and futures contracts, one can better understand whether professional traders are leaning bullish or bearish.There are occasional discrepancies in the methodologies between different exchanges, so viewers should monitor changes instead of absolute figures.Exchanges top traders Bitcoin long-to-short ratio. Source: CoinglassDespite Ether’s 9% correction since Dec. 24, top traders on Binance, Huobi and OKEx have increased their leverage longs. To be more precise, Binance was the only exchange facing a modest reduction in the top traders’ long-to-short ratio. The figure moved from 0.98 to 0.92. However, this impact was more than compensated by OKEx traders increasing their bullish bets from 1.67 to 3.20 in one week.Currently, there is hardly a sense of bearishness present in the market. According to the data, pro traders are buying the dip while retail investors’ net demand for shorts (sell) hardly changed throughout the past month. Of course, none of that can predict whenever Ether will flip the current descending channel, but one might infer that there’s little interest in betting on the downside from here.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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5 ways derivatives could change the cryptocurrency sector in 2022

We‘ve all heard stories of billion-dollar future contracts liquidations being the cause of 25% intraday price crashes in Bitcoin (BTC) and Ether (ETH) but the truth is, the industry has been plagued by 100x leverage instruments since BitMEX launched its perpetual futures contract in May 2016.The derivatives industry goes far beyond these retail-driven instruments, as institutional clients, mutual funds, market makers and professional traders can benefit from using the instrument‘s hedging capabilities. In April 2020, Renaissance Technologies, a $130 billion hedge fund, received the green light to invest in Bitcoin futures markets using instruments listed at the CME. These trading mammoths are nothing like retail crypto traders, instead they focus on arbitrage and non-directional risk exposure.The short-term correlation to traditional markets could riseAs an asset class, cryptocurrencies are becoming a proxy for global macroeconomic risks, regardless of whether crypto investors like it or not. That is not exclusive to Bitcoin because most commodities instruments suffered from this correlation in 2021. Even if Bitcoin price decouples on a monthly basis, this short-term risk-on and risk-off strategy heavily impacts Bitcoin‘s price.Bitcoin/USD on FTX (blue, right) vs. U.S. 10-year yield (orange, left). Source: TradingViewNotice how Bitcoin‘s price has been steadily correlated with the United States 10 year Treasury Bill. Whenever investors are demanding higher returns to hold these fixed income instruments, there are additional demands for crypto exposure.Derivatives are essential in this case because most mutual funds cannot invest directly in cryptocurrencies, so using a regulated futures contract, such as the CME Bitcoin futures, provides them with access to the market.Miners will use longer-term contracts as a hedgeCryptocurrency traders fail to realize that a short-term price fluctuation is not meaningful to their investment, from a miners‘ perspective. As miners become more professional, their need to constantly sell those coins is significantly reduced. This is precisely why derivatives instruments were created in the first place.For instance, a miner could sell a quarterly futures contract expiring in three months, effectively locking in the price for the period. Then, regardless of the price movements, the miner knows their returns beforehand from this moment on.A similar outcome can be achieved by trading Bitcoin options contracts. For example, a miner can sell a $40,000 March 2022 call option, which will be enough to compensate if the BTC price drops to $43,000, or 16% below the current $51,100. In exchange, the miner‘s profits above the $43,000 threshold are cut by 42%, so the options instrument acts as insurance.Bitcoin‘s use as collateral for traditional finance will expandFidelity Digital Assets and crypto borrowing and exchange platform Nexo recently announced a partnership that offers crypto lending services for institutional investors. The joint venture will allow Bitcoin-backed cash loans that can t be used in traditional finance markets.That movement will likely ease the pressure of companies like Tesla and Block (previously Square) to keep adding Bitcoin to their balance sheets. Using it as collateral for their day-to-day operations vastly increases their exposure limits for this asset class.At the same time, even companies that are not seeking directional exposure to Bitcoin and other cryptocurrencies might benefit from the industry‘s higher yields when compared to the traditional fixed income. Borrowing and lending are perfect use cases for institutional clients unwilling to have direct exposure to Bitcoin‘s volatility but, at the same time, seek higher returns on their assets.Investors will use options markets to produce “fixed income”Deribit derivatives exchange currently holds an 80% market share of the Bitcoin and Ether options markets. However, U.S. regulated options markets like the CME and FTX US Derivatives (previously LedgerX) will eventually gain traction. Institutional traders dig these instruments because they offer the possibility to create semi “fixed income” strategies like covered calls, iron condors, bull call spread and others. In addition, by combining call (buy) and put (sell) options, traders can set an options trade with predefined max losses without the risk of being liquidated.It‘s likely that central banks across the globe will worldwide keep interest rates near zero and below inflation levels. This means investors are forced to seek markets that offer higher returns, even if that means carrying some risk. This is precisely why institutional investors will be entering crypto derivatives markets in 2022 and changing the industry as we currently know.Reduced volatility is comingAs previously discussed, crypto derivatives are presently known for adding volatility whenever unexpected price swings happen. These forced liquidation orders reflect the futures instruments used for accessing excessive leverage, a situation typically caused by retail investors.Yet, institutional investors will gain a broader representation in Bitcoin and Ether derivatives markets and, therefore, increase the bid and ask size for these instruments. Consequently, retail traders‘ $1 billion liquidations will have a smaller impact on the price.In short, a growing number of professional players taking part in crypto derivatives will reduce the impact of extreme price fluctuations by absorbing that order flow. In time, this effect will be reflected in reduced volatility or, at least, avoid problems such as the March 2020 crash when BitMEX servers “went down” for 15 minutes.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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Crypto regulation is coming, but Bitcoin traders are still buying the dip

Looking at the Bitcoin chart from a weekly or daily perspective presents a bearish outlook and it’s clear that (BTC) price has been consistently making lower lows since hitting an all-time high at $69,000.Bitcoin/USD on FTX. Source: TradingViewCuriously, the Nov. 10 price peak happened right as the United States announced that inflation has hit a 30-year high, but, the mood quickly reversed after fears related to China-based real estate developer Evergrande defaulting on its loans. This appears to have impacted the broader market structure. Traders are still afraid of stablecoin regulation This initial corrective phase was quickly followed by relentless pressure from regulators and policy makers on stablecoin issuers. First came VanEck’s spot Bitcoin ETF rejection by the U.S. Securities and Exchange Commission on Nov. 12. The denial was directly related to the view that Tether’s (USDT) stablecoin was not solvent and concerns over Bitcoin’s price manipulation.On Dec. 14, the U.S. Banking, Housing and Urban Affairs Committee held a hearing on stablecoins focused on consumer protection and their risks and on Dec. 17, the U.S. Financial Stability Oversight Council (FSOC) voiced its concern over stablecoin adoption and other digital assets. “The Council recommends that state and federal regulators review available regulations and tools that could be applied to digital assets,” said the report.The worsening mood from investors was reflected in the CME’s Bitcoin futures contracts premium. The metric measures the difference between longer-term futures contracts to the current spot price in regular markets. Whenever this indicator fades or turns negative, this is an alarming red flag. This situation is also known as backwardation and indicates that bearish sentiment is present.Bitcoin CME 2-month forward contract premium versus Coinbase/USD. Source: TradingViewThese fixed-month contracts usually trade at a slight premium, indicating that sellers are requesting more money to withhold settlement for longer. Futures should trade at a 0.5% to 2% annualized premium in healthy markets, a situation known as contango.Notice how the indicator moved below the “neutral” range after Dec. 9 as Bitcoin traded below $49,000. This shows that institutional traders are displaying a lack of confidence, although it is not yet a bearish structure.Top traders are increasing their bullish betsExchange-provided data highlights traders’ long-to-short net positioning. By analyzing every client’s position on the spot, perpetual and futures contracts, one can better understand whether professional traders are leaning bullish or bearish.There are occasional discrepancies in the methodologies between different exchanges, so viewers should monitor changes instead of absolute figures.Exchanges top traders Bitcoin long-to-short ratio. Source: Coinglass.comDespite Bitcoin’s 19% correction since Dec. 3, top traders at Binance, Huobi, and OKEx have increased their leverage longs. To be more precise, Binance was the only exchange facing a modest reduction in the top traders’ long-to-short ratio. The figure moved from 1.09 to 1.03. However, this impact was more than compensated by OKEx traders increasing their bullish bets from 1.51 to 2.91 in two weeks.Related: SEC commissioner Elad Roisman will leave by end of JanuaryThe lack of a premium in CME 2-month future contracts should not be considered a ‘red alert’ because Bitcoin is currently testing the $46,000 resistance, its lowest daily close since Oct. 1. Furthermore, top traders at derivatives exchanges have increased their longs despite the price drop.Regulatory pressure probably won’t lift up in the short term, but at the same time, there’s not much that the U.S. government can do to suppress stablecoin issuance and transactions. These companies can move outside of the U.S. and operate using dollar-denominated bonds and assets instead of cash. For this reason, currently, there is hardly a sense of panic present in the market and from data shows, pro traders are buying the dip.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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Here's why Ethereum traders could care less about ETH's current weakness

Since hitting an all-time high at $4,870 on Nov. 10, Ether (ETH) price has been posting lower lows over the past 50 days. If this downtrend continues, the lower trendline support suggests that the altcoin will bottom at $3,600. Still, derivatives data is signaling that pro traders are not concerned about the seemingly bearish market structure.Ether/USD price on FTX. Source: TradingViewNotice how the price peaks are getting lower on the 12-hour time frame as mounting regulatory concerns drive investors away from the sector. In a press conference on Dec. 17, Russia’s Central Bank governor, Elvira Nabiullina, stated that banning crypto in the country is “quite doable.”Nabiullina cited crypto’s frequent use for illegal operations and significant risks for retail investors. Russian President Vladimir Putin also recently criticized cryptocurrency by saying they are not backed by anything. Interestingly, the country plans to launch its own central bank digital currency even as the Russian ruble lost 44% against gold over the past four years.In the United States, a bipartisan group of U.S. senators has called on Treasury Secretary Janet Yellen to clarify the language in the infrastructure bill relating to the crypto tax reporting requirements. Under the current broader “broker” definition, miners, software developers, transaction validators and node operators will likely be required to report digital asset transactions worth more than $10,000 to the Internal Revenue Service.Even with the regulatory uncertainty and negatively skewed price action, traders should monitor the futures contracts premium — also known as the “basis rate” — to analyze how bullish or bearish professional traders are.Pro traders are neutral despite the price weaknessThe basis indicator measures the difference between longer-term futures contracts and the current spot market levels. A 5% to 15% annualized premium is expected in healthy markets. This price gap is caused by sellers demanding more money to withhold settlement longer.However, a red alert emerges whenever this indicator fades or turns negative, also known as “backwardation.”Ether 3-month futures basis rate. Source: Laevitas.chNotice how the sharp decrease after the 24% intraday crash on Dec. 3 caused the annualized futures premium to reach its lowest level in two months. After the initial panic, the Ether futures market recovered to the current 9% level, which is close to the middle of the “neutral” range.To confirm whether this movement was specific to that instrument, traders should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The indicator will turn positive when “fear” is prevalent because the protective put options premium is higher than similar risk call options.When market makers are bullish, the 25% delta skew indicator shifts to the negative area, and readings between negative 8% and positive 8% are usually deemed neutral.Ether 30-day options 25% delta skew. Source: Laevitas.chRelated: Senate hearing on stablecoins: Compliance anxiety and Republican pushbackFor the past three weeks, the 25% delta skew ranged between a positive 3 and 8 which is in the neutral zone. Consequently, options market data validate the sentiment seen in futures markets and signals that whales and market makers are not worried about the recent price weakness.If investors “zoom-out” a bit, they will see that Ether’s year-to-date gains are at 300%, and this explains why pro traders are not worried about a 20% drop from the $4,870 all-time high.Furthermore, the Ethereum network’s total value locked in smart contracts doubled over the past six months to $148 billion. This data gives derivatives traders the confidence needed to remain calm even with the current short-term price weakness.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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Crypto derivatives can foresee price action but need institutional buzz to truly shine

The cryptocurrency market has been under a period of duress, with a majority of the tokens in the cryptoverse witnessing a price slump that has set in since the first week of December. The flagship cryptocurrency token, Bitcoin (BTC), underwent a flash crash on Dec. 4, wherein the price of the token fell below $50,000 in nearly two months, as per data from Cointelegraph Markets Pro.This phenomenon was witnessed among the majority of the cryptocurrency tokens as the market was gradually painted in red. Ethereum and Ether (ETH) came to be the network and token of choice for a majority of decentralized finance (DeFi) protocols as Ether witnessed a 19% price drop.However, BTC and ETH also have a healthy futures and options market that could’ve played an important role in foreseeing this ongoing price slump for these tokens.Coinindicing with the price crash on Dec. 4, $950 million worth of BTC options expired, wherein bears had the advantage over the bulls even at the time when the price was trading at $57,000. The options data leading up to this expiry suggested that it was skewed toward the market forces being bearish due to a high proportion of put options below the $57,000 mark. A put option is a contract that gives the holder of the option the right (but not the obligation) to sell a predefined amount of the underlying asset at a predetermined price.A call option is one in which the option holder has the right to buy the underlying assets under similar conditions. The proportion of put options in comparison with the call options leading up to an options expiry is highly indicative of the sentiment that prevails in the market for the underlying asset. In this case, there was a clear indication that markets were heavily bearish even a week before the expiry and the price flash that went hand in hand.The forces in playLuuk Strijers, the chief commercial officer of crypto derivatives exchange Deribit, spoke to Cointelegraph about the signs in the derivatives data that gave an inkling about the incoming crash: “Prior to the weekend correction, we saw a spike in IVs possibly related to post-expiry related selling. There seemed to be some uncertainty in the market, and we saw Risk-reversal strategies being traded (Sell OTM Call + Buy OTM Put).”Since the expiration date for an option is the last date on which the option holder can either decide to exercise the option of either executing the buy or sell order of the underlying asset or the holder deciding to forfeit the option and let it expire becoming worthless, expiries often become significant events that impact the price dynamics of the underlying asset, in this case, Bitcoin. Strijers opined on the impact of this particular expiry on BTC, saying: “Difficult to tell for certain. However, more and more people watch the expiry and open interest levels at certain key strikes which amplifies the relevance of the larger expiries.”Adam James, senior analyst at OKEx Insights, the research arm of crypto exchange OKEx, spoke with Cointelegraph about signs leading up to this crash: “The most obvious signs that a crash may be impending were the extremely high open interest and positive funding. Those two things don’t generally bode well and often require a flush.” He added further:“The cascading sell-off we saw on Saturday was just that flush — thin weekend order books made it easy to steamroll overleveraged longs and cause something of an OI reset. As it happened, the crash was one of the largest capitulating events in BTC’s history.”Despite this phenomenon being an indication that the price of the underlying assets and the derivatives markets are closely related, the size of the markets is still only a blip on the size of the spot markets.Institutional investors could be the game-changerConsidering the derivatives markets that exist for the top two cryptocurrency tokens, BTC and ETH — though with significant growth in open interest — it is a very small percentage of the spot markets and its current market capitalization for their assets. The open interest (OI) for BTC options has grown more than tenfold from nearly $1 billion on July 1 to stand at around $11.4 billion at the time of writing. The OI hit an all-time high of $15.72 billion on Oct. 20. Soon after, BTC hit an all-time high of $68,789.63 on Nov. 10.Considering that the total market capitalization of BTC in the spot markets in the same duration was over $1 trillion, it is highly evident that cryptocurrency options are only in their nascent stages and, even still, play a vital role in the price discovery and forecasting abilities for the asset. A similar phenomenon is observed when taking a closer look at the OI data for ETH too.Cointelegraph discussed the size of the crypto options markets with Igneus Terrenus, head of communications at cryptocurrency derivatives exchange Bybit: “When you compare it either to the options market in the commodities space or what Robinhood offers for stocks, what is currently available in the crypto options market seems to be inadequate for both institutional and retail traders.”Institutional investors could be the game-changer to enable drastic change in the crypto derivatives market by exponentially increasing the size, liquidity and depth of these markets. Goldman Sachs, the investment banking giant that revived its defunct cryptocurrency trading desk amid this bull run, predicted that the cryptocurrency options market could be seen as the next frontier for institutional adoption of crypto. The wall street bank themselves announced plans to expand their crypto trading desk to engage with BTC and ETH derivatives products as well.However, Strijers explained that institutional investors coming into the crypto derivatives market is a slow-moving process, especially due to Know Your Customer (KYC) and due diligence processes. He said, “In November, we have onboarded more institutional clients than any month before — the larger the firm, the longer the mutual onboarding process.” He went on to add: “Now, those large clients have an extensive platform and a due diligence procedure as well, especially the ones offering third party asset management in some form, like the multi-billion dollar macro funds, for example.”Other Altcoins play catch upCurrently, there is a liquid options market that exists only for BTC and ETH on various cryptocurrency exchanges like Deribit, LedgerX, OKEx, FTX and even the Chicago Mercantile Exchange (CME), the largest derivatives exchange in the world for traditional asset classes. However, there are no options products available for other prominent cryptocurrency tokens like XRP (XRP), Solana (SOL), Binance Coin (BNB), Polkadot (DOT), and many others, even though these tokens have a highly liquid spot market and even a futures market. Strijers explained further the reasoning behind this existing scenario: “We plan to make SOL products available soon. Beyond that, it remains to be seen as we require proper market maker coverage at all times, including, for example, Sunday evening and other times, in all strikes and expiries. We can’t rely on a handful of market makers, but need many more.”Related: Cryptocurrency derivatives market shows growth despite regulatory FUDNonetheless, there is also a liquid futures market that is available for several of the top cryptocurrencies, even including the meme coin Dogecoin (DOGE) and the native token of the nonfungible token (NFT) game Axie Infinity (AXS). Even still, the OI of the futures-based products of these tokens hasn’t even touched $1 billion despite the market concluding one of the longest bull runs that the ecosystem has ever witnessed.The token, apart from BTC and ETH, that has the highest OI for its futures is SOL, standing at nearly $870 million at the time of writing. Next in the ranks is DOT, with an OI of $573 million, followed by BNB with an OI of $521 million.Considering that all of these altcoins have a spot market capitalization of over $50 billion, the futures market for these tokens is currently only a small proportion of their total market capitalization. This indicates that even though there is a liquid futures market for these assets, its size is very small to have a significant impact on price, although they do play a role in price discovery of the underlying token.As institutional and retail adoption of cryptocurrencies is seen to be growing by leaps and bounds in the past year, their involvement on the derivatives side of the market will also increase over time, especially once institutional giants like Grayscale jump to the fore and get heavily involved in this market pushing market and pricing efficiencies for these assets.

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$1.1B in Bitcoin options expire on Friday, but data points to a sub-$55K BTC price

Bitcoin (BTC) bulls are still licking their wounds from the bloody Dec. 4 correction which saw the price collapse from $57,000 all the way to $42,000. This 26.5% downside move caused $850 million in long BTC futures contracts to be liquidated, but more importantly, it shifted the “Fear and Greed index” to its lowest level since July 21.Bitcoin/USD price at FTX. Source: TradingViewIt is somehow strange to compare both events, as the July 21 sub $30,000 low would have erased the entire gains in 2021. Meanwhile, the $42,000 low from Dec. 4 is still a 44% gain year-to-date. Compare this against the S&P 500 which is up 21% in 2021 and the WTI oil price which has accrued a 41% gain.Bulls might be focused on the Bitcoin reserves held at exchanges, which continues to descend and currently sits at the lowest level in 3 years. According to data from CryptoQuant, there are now less than 2.27 million BTC deposited at exchanges and having fewer coins available for trading signals that investors are unwilling to sell in the short term. This is a dynamic that many investors consider to be bullish.Even with the apparent balance between call (buy) and put (sell) options on Friday’s $1.1 billion expiry, bears are better positioned after Bitcoin stabilized slightly above $50,000.Bitcoin options aggregate open interest for Oct. 10. Source: CoinGlassA broader view using the call-to-put ratio shows a modest 7% advantage to Bitcoin bulls because the $555 million call (buy) instruments have a larger open interest versus the $520 million put (sell) options. However, the 1.07 indicator is deceptive because the 11.5% price drop over the past week caused most bullish bets to become worthless.For example, if Bitcoin’s price remains below $52,000 at 8:00 am UTC on Dec. 10, only $50 million worth of those call (buy) options will be available. That effect happens because there is no value in the right to buy Bitcoin at $55,000 if it is trading below such price.The numbers suggest that bulls are set for a major lossBelow are the three most likely scenarios based on the current price action. The number of option contracts available on Dec. 10 for bulls (call) and bear (put) instruments vary depending on the expiry BTC price. The imbalance favoring each side constitutes the theoretical profit:Between $47,000 and $50,000: 400 calls vs. 6,600 puts. The net result is $300 million favoring the put (bear) instruments.Between $50,000 and $54,000: 1,700 calls vs. 4,700 puts. The net result is $160 million favoring the put (bear) instruments.Above $54,000: 2,400 calls vs. 2,900 puts. The net result favors the put (bear) options by $30 million.This crude estimate considers the call options being used in bullish bets and the put options that are exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.For instance, a trader could have sold a call option, effectively gaining a negative exposure to Bitcoin above a specific price. But, unfortunately, there’s no easy way to estimate this effect.Bears will do their best to hold BTC below $50,000Bitcoin bears need a gentle push to sub-$50,000 to score a $300 million profit. On the other hand, bulls would need a 7.2% price recovery from the current $50,500 to reduce their loss by half.Considering the $2 billion liquidation of leverage long positions on Dec. 4, bulls are likely trying to stay afloat and will be unwilling to add more risk right now. It would be unnecessarily ineffective for bullish investors to waste their efforts trying to salvage this short-term loss. So in this instance, bears look set to maintain the upper hand in this weekly options expiry.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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