Bitcoin traders were braced for a hot CPI report, but the BTC bears remain in control

Cryptocurrency traders were surprised after the October 13 Consumer Price Index report showed US inflation rose 0.6% in September compared to the previous month. The slightly higher than expected number saw Bitcoin (BTC) face a 4.4% price correction from $19,000 to $18,175 in less than three hours.

The sudden move prompted $55 million in Bitcoin futures liquidations on derivatives exchanges, the largest amount in three weeks. The $18,200 level was the lowest since September 21 and marks a weekly correction of 8.3%.

It is worth highlighting that the decline below $18,600 on September 21 lasted less than 5 hours. Bears were likely disappointed when a 6.3% rally took place on September 22, causing Bitcoin to test the $19,500 resistance. A similar trend occurs on October 13 when BTC is currently trading near $19,000.

The stock market also reacted negatively as the technology-heavy Nasdaq Composite index fell 3% after the inflation data was released. After the initial panic sell-off, the Nasdaq adjusted for a 2% daily loss as analysts reaffirmed their expectations for a 0.75% rate hike by the US Federal Reserve in November.

Investors became even more bearish after BlackRock Inc (BLK) reported a 16% drop in profits compared to the previous year. Meanwhile, financial heavyweights JPMorgan Chase ( JPM ) and Morgan Stanley ( MS ) are due to report on Friday.

Contrary to US President Joe Biden’s appeal, Saudi Arabia’s foreign ministry issued a rare statement on October 13 defending the Organization of the Petroleum Exporting Countries’ production cuts. The White House wanted to delay the decision until after the midterms. Nevertheless, the oil producer group decided to reduce the supply target by 2 million barrels per day from November.

All these developments add to investors’ bearish sentiment, and to get a better view of what’s happening in the crypto sector, traders should look at derivatives data to see if investors were surprised after the 4.4% drop below $18,200.

Futures markets were bearish over the past month

Retail traders usually avoid quarterly futures because of their price difference from the spot markets. However, they are professional traders’ instruments of choice because they prevent the fluctuations in funding rates that often occur in a perpetual futures contract.

The indicator should trade at an annual premium of 4% to 8% in healthy markets to cover costs and associated risks. Derivatives traders had been neutral to bearish over the past month because the Bitcoin futures premium remained below 1% throughout.

This data reflects the reluctance of professional traders to add to leveraged long (bull) positions despite the low cost. However, one must also analyze the Bitcoin options markets to rule out externalities specific to the futures instrument.

Options traders are not willing to offer downside protection

25% delta bias is a clear sign when market makers and arbitrage tables are overcharging for upside or downside protection. For example, in bear markets, option investors place higher odds on a price dump, causing the bias indicator to rise above 12%. On the other hand, bullish markets tend to drive the bias indicator below negative 12%, which means that the bearish put options are discounted.

The 30-day delta skew had been above the 12% threshold since October 10, signaling that options traders were less inclined to offer downside protection. These two derivative calculations suggest that the October 13 Bitcoin price dump may have been partially anticipated, explaining the relatively low impact on liquidations.

More importantly, the prevailing bearish sentiment remained after CPI inflation was announced. Consequently, whales and markers are less likely to add leverage or offer downside protection. Given the weak macroeconomic conditions and global political tensions, the odds currently favor the bears.