Two essential metrics in Bitcoin price data hint that the bullish traders could successfully retain the $30,000 mark as a support level.
Bitcoin BTC $30,198 has maintained a stance above $31,000 following its unexpected 24.3% rally from June 15 to June 23. This sudden surge resulted in $165 million worth of short futures contract liquidations for bears while also unsettling investors involved with Bitcoin derivatives.
The most considerable uncertainty for conventional markets continues to be inflation, as underscored by the recent 50-basis-point hike in interest rates by the Bank of England. Similar actions followed in Norway and Switzerland, leading to the highest capital costs in the region for over a decade.
Addressing the U.S. House Financial Services Committee on June 21, Jerome Powell, the Federal Reserve Chair, suggested that reducing inflation back to 2% is a significant undertaking. He added that “most FOMC participants anticipate a need for a slight rise in interest rates by the year-end.”
According to strategists at JPMorgan, headed by Marko Kolanovic, “the recent resilience of the economy may postpone the arrival of a recession.” Therefore, the effects of the central bank’s monetary tightening strategy are yet to be experienced, and a recession could be necessary to bring inflation back to target.
Investors are now speculating if Bitcoin has the potential to stay above the $30,000 resistance, given the bearish pressure resulting from a probable economic downturn and further central bank actions intended to limit capital demand.
Therefore, traders need to keep a close watch on the Bitcoin futures contract premiums and the hedging costs using BTC options.
Moderate Uptick in Bitcoin Derivatives
Bitcoin’s quarterly futures contracts are preferred by large-scale investors and arbitrage desks. These contracts typically trade at a slight premium to the spot markets, meaning sellers demand more money to postpone settlement.
In healthy markets, BTC futures contracts should have a 5% to 10% annualized premium, known as contango. This scenario is not exclusive to cryptocurrency markets.
There’s a marginal increase in the demand for leveraged BTC long positions as the futures contract premium rose from 3.2% to 4.3% on June 22. However, it’s still below the neutral 5% mark.
To gauge if the recent correction has made investors more optimistic, traders should also scrutinize the options markets. The 25% delta skew is a reliable indicator of the premium arbitrage desks and market makers charge for upside or downside protection.
In essence, if traders predict a fall in Bitcoin prices, the skew metric will exceed 7%, while periods of bullishness tend to register a negative 7% skew.
The 25% delta skew metric exited “fear” mode on June 16 as Bitcoin’s price went back above the $26,000 support level. This trend continued till June 22, ending with a moderate “greed” sentiment at a negative 8% skew.
Lack of Excessive Optimism is Favorable
Under normal circumstances, a 4.3% futures basis and a negative 8% delta skew would be considered neutral market signals. However, considering the 21.5% Bitcoin price rally from June 15 to June 22, these figures reflect a healthy degree of caution among derivatives contracts buyers. This caution allows room for further leverage if required.
The ongoing legal confrontation between Binance and the U.S. Securities and Exchange Commission poses a risk for BTC futures contracts. Decisions from the U.S. District Court for the District of Columbia could profoundly impact the cryptocurrency market, given Binance’s dominant position in spot and derivatives markets.
Uncertainties surrounding the crypto regulatory environment and the potential for an economic recession might explain the lack of enthusiasm among Bitcoin derivatives traders.
Barring these external risks, there doesn’t seem to be any significant factor justifying a steep BTC price correction. This leaves the bulls with just enough optimism to maintain the positive momentum.