Bitcoin derivatives data suggests BTC price holds the current range

Bitcoin (BTC) gained 5% after testing support at $25,000 on September 11. However, this breakout rally does not necessarily mean victory for the bulls. Looking at today’s price action, BTC is down 15% since July. In contrast, the S&P 500 and gold have remained relatively stable during this period.

This underperformance suggests that Bitcoin is struggling to gain momentum despite major catalysts, such as Microstrategy’s plan to acquire an additional $750 million worth of BTC and multiple requests for a Bitcoin spot ETF from Trillion Dollar Asset Management. Nonetheless, according to Bitcoin Derivatives, bulls are confident that $25,000 marks a bottom and opens room for further price gains.

Bitcoin/USD versus gold and S&P 500 futures, 12 hours. Source: TradingView

Some believe that the main drivers of Bitcoin in 2024 are still in play, especially the prospect of spot ETFs and the reduction in supply after the April 2024 halving. Additionally, some immediate risks to the cryptocurrency market have subsided after the U.S. Securities and Exchange Commission (SEC) suffered partial losses in three separate cases involving Grayscale, Ripple, and decentralized exchange Uniswap.

On the other hand, shorts have their own set of advantages, including ongoing legal proceedings against leading exchanges like Binance and Coinbase. Additionally, Digital Currency Group (DCG) has struggled financially after a subsidiary declared bankruptcy in January 2023. The group has more than $3.5 billion in debt, which could lead Grayscale to sell funds it manages, including the Grayscale Bitcoin Trust (GBTC).

Let’s take a look at derivatives indicators to better understand where professional traders are positioned in current market conditions.

Bitcoin futures and options indicators remain stable despite correction

Bitcoin monthly futures typically trade at a slight premium to the spot market, suggesting sellers are demanding more funds to delay settlement. Therefore, the annualized premium for Bitcoin futures contracts should typically be 5% to 10%, a condition known as contango, which is not unique to the cryptocurrency market.

Bitcoin 1-month futures annualized premium. Source: Laevitas.ch

Notably, demand for leveraged BTC long and short positions via futures contracts did not have a significant impact on the September 11 drop below the $25,000 mark. However, BTC futures premium continues to hover below the 5% neutral threshold. The indicator remains in neutral to bearish territory, indicating a lack of demand for leveraged long positions.

To further gauge market sentiment, it is also helpful to look at the options market, as a 25% delta deviation can assess whether a retest of $25,000 makes investors more optimistic. In short, if traders expect Bitcoin prices to fall, the bias indicator will rise above 7%, whereas euphoric times typically see a negative bias of 7%.

Bitcoin 30-day options 25% delta bias. Source: Laevitas.ch

On September 11, things took a significant turn, with the 25% delta skewness indicator (which previously indicated a 9% premium on protective puts, indicating investors were anticipating a pullback) now settling at 0. This shows that pricing balances the difference between calls and puts, meaning that calls and puts are equally likely to move in price.

Macroeconomic uncertainty favors bears, but Bitcoin bulls remain confident

Given the macroeconomic uncertainties, especially the upcoming September 13 inflation CPI report and September 14 retail sales data, cryptocurrency traders may be cautious and prefer a “reversion to the mean.” In this case, the average represents the main trading range of $25,500 to $26,200 observed over the past few weeks.

However, from a bullish perspective, the fact that the derivatives market held firm during the dip below $25,000 is a promising sign. In other words, if bears had firm conviction, one would expect greater appetite for put options and a negative Bitcoin futures premium, known as “contango.”

Ultimately, both bulls and bears have major triggers that could impact Bitcoin’s price, but predicting the timing of events like court decisions and ETF rulings is challenging. This dual uncertainty may explain why derivatives indicators have remained resilient, as both parties exercise caution to avoid overexposure.