Bitcoin futures return for the first time in a year

Bitcoins (BTC) month-to-date chart is very bearish, and the level below $ 18,000 seen over the weekend was the lowest price since December 2020. Bulls current hopes depend on turning $ 20,000 to support, but derivative calculations tell a completely different story as professional traders are still extremely skeptical.

It is important to remember that the S&P 500 index fell 11% in June, and even multibillion-dollar companies such as Netflix, PayPal and Caesars Entertainment have corrected with 71%, 61% and 57% losses, respectively.

The US Federal Open Market Committee raised its reference rate by 75 basis points on June 15, and Federal Reserve Chairman Jerome Powell suggested that more aggressive austerity measures could be pending as monetary authorities continue to struggle to curb inflation. However, investors and analysts fear that this move will increase the risk of recession. According to a note from Bank of America to customers issued June 17:

“Our worst fears about the Fed have been confirmed: they fell far behind the curve and are now playing a dangerous game to catch up.”

Furthermore, according to analysts at the global investment bank JPMorgan Chase, the record-high total stablecoin market share in crypto “points to oversold conditions and significant upside for the crypto markets from here.” According to analysts, the lower percentage of stablecoins in the total crypto market value is associated with a limited crypto potential.

At the moment, crypto investors are experiencing mixed feelings between fears of a recession and optimism that support for $ 20,000 will increase in strength, as stack coins may eventually flow into Bitcoin and other cryptocurrencies. For this reason, analysis of derivative data is valuable for understanding whether investors are pricing higher odds of a decline.

The Bitcoin futures premium will be negative for the first time in a year

Retailers usually avoid quarterly futures due to their price difference from spot markets, but they are professional traders’ preferred instruments because they avoid perpetual fluctuations in the financing rate of contracts.

These fixed-term contracts are usually traded at a small premium to the spot markets because investors demand more money to hold back the settlement. This situation is not exclusive to crypto markets. Consequently, futures should be traded at an annual premium of 5% to 12% in healthy markets.

Bitcoin’s futures premium failed to break the neutral threshold of 5%, while the Bitcoin price stuck to the support of $ 29,000 until June 11. Every time this indicator fades or becomes negative, this is an alarming, bearish red flag that signals a situation called backwards.

To exclude externalities specific to the futures instrument, traders must also analyze the Bitcoin options markets. For example, the delta skew of 25% shows when Bitcoin market makers and arbitrage counters charge for upside or downside protection.

In bullish markets, option investors offer higher odds for a price pump, which causes the skew indicator to fall below -12%. On the other hand, a market’s generalized panic induces a positive bias of 12% or higher.

The 30-day delta skew peaked at 36% on June 18, the highest record ever and typical of extremely bearish markets. Apparently, the 18% price increase on Bitcoin since the bottom of $ 17,580 was sufficient enough to reinstall some confidence in derivatives traders. While the 25% skew indicator remains unfavorable for pricing downside risk, at least it is no longer at levels that reflect extreme aversion.

Analysts expect “maximum damage” going forward

Some estimates suggest that Bitcoin may have bottomed out on June 18, especially since the $ 20,000 support has gained momentum. On the other hand, market analyst Mike Alfred made it clear that, in his opinion, “Bitcoin is not done liquidating large players. They will take it down to a level that will cause maximum damage to the most overexposed players like Celsius.”

Until traders have a better overview of the risk of infection from the implosion of the Terra ecosystem, the possible insolvency of Celsius and the liquidity problems facing Three Arrows Capital, the odds of a new Bitcoin price crash are high.

The views and opinions expressed here are solely those of author and does not necessarily reflect the views of the Cointelegraph. Every investment and trade involves risk. You should do your own research when making a decision.