The price of Bitcoin has surged higher, but where are all the leveraged long traders?


This week’s Bitcoin (BTC) chart leaves little doubt that the symmetrical triangle pattern is breaking higher after constricting the price for nearly 20 days. However, derivatives metrics tell a completely different story as professional traders do not want to add leveraged positions and overcharge to protect against downside.

BTC-USD 12 hour price in Kraken. Source: Trading View

Will BTC reverse course even if macroeconomic conditions collapse?

Whether BTC turns the $30,000-$31,000 level into support depends to some extent on the performance of global markets.

The last time U.S. stock markets experienced a seven-straight downtrend was more than a decade ago. U.S. new home sales fell for the fourth straight month, also the longest streak since October 2010.

China saw a whopping 20% ​​year-over-year decline for its on-demand services, the worst change on record. According to government data released on May 30, consumer spending on internet services from January to April was $17.7 billion.

The value of equity offerings in Europe also hit its worst level in 19 years after rising interest rates, inflation and macroeconomic uncertainties caused investors to take refuge in cash. Initial public offerings and follow-on deals only raised $30 billion throughout 2022, according to Bloomberg.

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All of the above makes it easier to understand the gap between Bitcoin’s recent price rally to $32,300 and weak derivatives data as investors price higher probabilities of a downturn, primarily due to deterioration in global macroeconomic conditions.

Derivatives metrics are neutral to bearish

Retail traders generally avoid quarterly futures contracts because of their price difference from spot markets, but they are the preferred instrument of professional traders because they avoid the fluctuating funding rate of perpetual contracts.

These fixed-month contracts typically trade at a slight premium to spot markets, as investors demand more money to hold settlement. This situation is not exclusive to crypto markets. Therefore, futures contracts should trade at an annualized premium of 5-12% in healthy markets.

Annualized 3-month Bitcoin futures premium. Source: Laevitas

According to data from Laevitas, Bitcoin’s futures premium has been below 4% since April 12. This reading is typical of bear markets and it is concerning that the metric failed to break above the 5% neutral threshold even as the price headed towards $32,000.

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To rule out futures-specific externalities, traders should also analyze Bitcoin options markets. The 25% delta skew is optimal because it shows when Bitcoin market makers and arbitrage desks are overcharging for upside or downside protection.

During bear markets, option investors give higher odds for a price crash, which pushes the bias indicator above 12%. On the other hand, the generalized excitement of a bull market induces a negative bias of 12% or less.

Bitcoin options 30 days 25% delta skew: Source: Laevitas

The 30-day delta skew peaked at 25.4% on May 14, the highest record on record and typical of extreme bear markets. However, the situation improved on May 30 and 31 as the indicator stabilized at 14%, but it incorporates a higher probability of a price crash. Nonetheless, it shows a moderate improvement in sentiment among derivatives traders.

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The risks of a global economic slowdown are probably the main reason Bitcoin options markets are stressed and why the futures premium is still low. The 30-day correlation of BTC against the S&P 500 index is 89%, which means traders have less incentive to place bullish bets on cryptocurrencies.

Some metrics suggest the stock market may have bottomed out last week, especially as it trades 8.5% above the May 20 intraday low, but weak economic numbers are weighing on investor sentiment. This stimulates risk aversion dynamics and negatively impacts cryptocurrency markets.

Until there is a better definition of traditional finance and the world’s largest economies, Bitcoin traders should continue to avoid building leveraged long positions and maintain a bearish position, a characteristic which is currently being reflected in the options markets.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of TSTIME. Every investment and trading move involves risk. You should conduct your own research before making a decision.