Značka: skew

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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2 key Bitcoin trading indicators suggest BTC is ready for a 62% upside move

Bitcoin (BTC) has been below $45,000 for 14 days and is currently 40% below the $69,000 all-time high. This movement holds similarities to late-September 2021, when Bitcoin price flat-lined for 11 days and was 36% below the previous $64,900 all-time high on April 14.Bitcoin price at Coinbase, USD. Source: TradingViewTo understand whether the current price momentum mimics late September, traders should start by analyzing the Bitcoin futures contracts premium, which is also known as “basis.” Unlike a perpetual contract, these fixed-calendar futures do not have a funding rate, so their price will differ vastly from regular spot exchanges.By measuring the expense gap between futures and the regular spot market, a trader can gauge the level of bullishness in the market. Excessive optimism from buyers tends to make the three-month futures contract to trade at a 15% or higher annualized premium (basis).Bitcoin 3-month futures premium in Sept. 2021. Source: laevitas.chFor example, earlier in September, the basis rate ranged from 9% to 13%, indicating confidence, but on Sept. 29, right before Bitcoin broke out above $45,000, the 3-month futures premium was at 6.5%. Generally, readings below 5% are typically deemed bearish, so a 6.5% reading in late September meant investors were displaying low confidence.Bitcoin 3-month futures premium. Source: laevitas.chRegarding the current market conditions, there are a lot of similarities to September 2021, right before Bitcoin broke $45,000 and initiated a 62% rally. First, the current Bitcoin 3-month futures premium stands at 6.5% and the indicator recently ranged from 9% to 11%, reflecting mild optimism.Unexpected positive market moves happen when investors least expect it and this is precisely the scenario happening right now. To confirm whether this move was specific to the instrument, one should also analyze options markets. The 25% delta skew compares equivalent call (buy) and put (sell) options. The indicator will turn positive when “fear” is prevalent because the protective put options premium is higher than the call options.Related: What bear market? Current BTC price dip still matches previous Bitcoin cycles, says analystThe opposite holds when market makers are bullish, causing the 25% delta skew to shift to the negative area. Readings between negative 8% and positive 8% are usually deemed neutral.Deribit Bitcoin options 25% delta skew in Sept. 2021. Source: laevitas.chThe 25% delta skew ranged near 10% by late Sept. 2021, indicating distress from options traders. Market makers and arbitrage desks were overcharging for protective put (bearish) positions.Deribit Bitcoin options 25% delta skew. Source: laevitas.chAccording to the current 25% delta skew indicator, options traders are neutral. However, on Jan. 10 the metric touched the 8% positive threshold, signaling a mild bearishness.Derivatives metrics show that the current market conditions resemble late-September when Bitcoin reversed a 24-day downtrend and initiated a 62% rally in the following three weeks. Will this phenomenon repeat itself? Bitcoin bulls certainly hope so.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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Bitcoin price bounces to $41.5K, but derivatives data shows traders lack confidence

Bitcoin (BTC) briefly reached its lowest level in five months this Monday at $39,650, marking a 42.6% drawdown from the all-time high present on Nov 22, 2022. Some argue that a “crypto winter” has already begun citing the $2.1 billion leverage-long aggregate crypto futures contracts that were liquidated over the past seven days.Bitcoin/USD price at FTX. Source: TradingViewThe descending channel guiding Bitcoin’s negative performance for the past 63 days indicates that traders should expect sub-$40,000 prices by February.Confidence from investors continued to decline after the United States Federal Reserve’s December FOMC session on Jan. 5. The monetary policy authority showed commitment to decrease its balance sheet and increase interest rates in 2022.On Jan. 5, Kazakhstan’s political turmoil added further pressure to the markets. The country’s internet was shut down amid protests and this caused Bitcoin’s network hashrate to tumble 13.4%. Futures traders are still neutralTo analyze how bullish or bearish professional traders are, one should monitor the futures premium , which is also known as the “basis rate.”The indicator measures the difference between longer-term futures contracts and current market levels. A 5% to 15% annualized premium is expected in healthy markets, which is a situation known as contango.This price gap is caused by sellers demanding more money to withhold settlement longer and a red alert emerges whenever this indicator fades or turns negative, which is a scenario known as “backwardation.”Bitcoin 3-month future contracts basis rate. Source: Laevitas.chNotice how the futures market premium did not trade below 7% over the past couple of months. This is an excellent indicator considering the absence of Bitcoin price strength during this period.Options traders are not as bullishTo 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. This 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 which causes the 25% delta skew indicator to shift to the negative area.Deribit Bitcoin options 25% delta skew. Source: laevitas.chReadings between negative 8% and positive 8% are usually deemed neutral. The last time the 25% delta skew indicator entered the “fear” range at 10% was on Dec 6, 2022.Related: Bitcoin drops below $40K for first time in 3 months as fear set to ‘accelerate’Thus, options markets’ traders are at the very edge of the neutral-to-bearish sentiment because the indicator currently stands at 8%. Moreover, buying protective put options is becoming more expensive, so market markers and arbitrage desks are not confident that $39,650 was the bottom.Overall, the sentiment is pessimistic and the $2.1 billion in aggregate futures contracts liquidations signal that derivatives traders’ longs (buyers) are quickly losing confidence. Only time will tell where the exact bottom is, but presently, there is not an indication of strong support coming from pro traders.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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