Bitcoin (BTC) faces a 4.9% correction in four days after failing to break above $28,000 resistance on October 8, with derivatives indicators showing fear is dominating market sentiment, but will it be enough to shake Bitcoin prices from current levels? ?
Looking at the bigger picture, Bitcoin has performed admirably, especially compared to gold, which has fallen 5% since June, while Treasury Inflation-Protected Securities (TIPs) have fallen 4.2% over the same period. By merely holding on to $27,700, Bitcoin has overtaken two of the safest assets in traditional finance.
Given that Bitcoin price fell to $28,000 on October 8, investors should analyze BTC derivative indicators to determine whether bears are indeed in charge.
Inflation-protected Treasury securities are U.S. government bonds designed to protect against inflation. As a result, ETF values tend to rise as inflation increases because bond principal and interest payments are adjusted for inflation, preserving investors’ purchasing power.
$27,600 in Bitcoin isn’t necessarily a bad thing
No matter how you describe this historic achievement, Bitcoin enthusiasts may not be completely satisfied with its current market capitalization of $520 billion, although it surpasses global payment processors Visa ($493 billion) and Exxon Mobil ($428 billion) ) market value. This bullish expectation is based in part on Bitcoin’s all-time high of $1.3 trillion in November 2021.
Notably, the DXY index, which measures the dollar against a basket of foreign currencies including the euro, Swiss franc and pound, is approaching its highest level in 10 months. This shows a strong vote of confidence in the resilience of the U.S. economy, at least in relative terms. This alone is enough to justify declining interest in alternative hedging instruments like Bitcoin.
Some might say that the S&P 500’s 3% gain since June contradicts investors seeking cash positions. However, in addition to being highly profitable, the top 25 companies hold a combined $4.2 trillion in cash and equivalents. This explains why stocks are also used as hedging tools rather than by risk-seeking businesses.
Essentially, there is no reason for Bitcoin investors to be dissatisfied with its recent performance. However, this sentiment changes when we analyze BTC derivative indicators.
Bitcoin derivatives show declining demand from bulls
First, Bitcoin’s future contract premium, also known as the basis, reached its lowest level in four months. Typically, monthly Bitcoin futures trade at a slight premium to the spot market, indicating sellers require additional funds to delay settlement. Therefore, futures contracts in healthy markets should trade at annualized premiums of 5% to 10%, a situation that is not unique to crypto markets.
The current contango (basis rate) of 3.2% is at its lowest since mid-June (before BlackRock applied for a spot ETF). This indicator indicates declining interest from leveraged buyers, although it does not necessarily reflect bearish expectations.
To determine whether the October 8 price rejection at $28,000 led to a decline in investor optimism, traders should check the Bitcoin options market. Delta deviation of 25% is a telling indicator, especially when arbitrage desks and market makers charge exorbitant fees for upside or downside protection.
Related: Is SBF Really Using FTX Trader’s Bitcoin to Keep BTC Price Under $20,000?
If traders expect Bitcoin prices to fall, the bias indicator will rise above 7%, while periods of excitement tend to see negative 7% bias.
As shown in the chart above, the 25% delta bias in Bitcoin options shifted into “fear” mode on October 10, with protective put (sell) options currently trading at a premium to similar call (buy) options 13%.
Bitcoin derivatives indicators indicate that trader confidence is waning, in part due to repeated delays in the SEC’s decision on a Bitcoin spot ETF and concerns about exchanges’ exposure to risks from terrorist groups.
Currently, negative sentiment toward cryptocurrencies appears to negate any benefits from macroeconomic uncertainty and the natural hedging protection provided by Bitcoin’s predictable monetary policy. At least from a derivatives perspective, the likelihood of Bitcoin prices breaking through $28,000 in the short term seems slim.
This article is for general information purposes only and is not intended to be, and should not be construed as, legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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