Pro Bitcoin traders are uncomfortable with bullish positions

The previous support level of $19,000 Bitcoin (BTC) is becoming more distant after 22.5% gain in nine days. However, little optimism has been instilled as the impact of the Three Arrows Capital (3AC), Voyager, Babel Finance and Celsius crises remains uncertain. In addition, the infection has claimed another victim after the Thai crypto exchange Zipmex stopped withdrawals on 20 July.

Bulls’ hopes hinge on the $23,000 support eventually strengthening, but derivatives calculations show professional traders remain highly skeptical of a sustained recovery.

Macroeconomic headwinds favor scarce assets

Some analysts attribute crypto market strength to China’s lower-than-expected gross domestic product data, prompting investors to expect further expansionary measures from policymakers. China’s economy expanded 0.4% in the second quarter from a year earlier, as the country continued to struggle with self-imposed restrictions to curb a new outbreak of COVID-19 infections, according to CNBC.

Britain’s 9.4% inflation in June marked a 40-year high and, ostensibly to help the population, Finance Minister Nadhim Zahawi announced a $44.5bn (£37bn) aid package for vulnerable families.

Under these circumstances, Bitcoin reversed its downward trend as policymakers attempted to solve the seemingly impossible problem of slowing economies amid ever-increasing national debt.

However, the cryptocurrency sector faces its own problems, including regulatory uncertainties. For example, on July 21, the United States Securities and Exchange Commission (SEC) labeled nine tokens as “crypto asset securities”, thus not only falling under the purview of the regulatory body, but also liable for failing to register with it.

The SEC specifically referenced Powerledger (POWR), Kromatika (KROM), DFX Finance (DFX), Amp (AMP), Rally (RLY), Rari Governance Token (RGT), DerivaDAO (DDX), LCX and XYO. The regulator accused a former Coinbase product manager of “insider trading” after they allegedly used non-public information for personal gain.

Currently, Bitcoin investors face too much uncertainty despite the seemingly helpful macroeconomic backdrop, which should favor scarce assets like BTC. For this reason, an analysis of derivatives data is valuable in understanding whether investors are pricing in higher odds of a decline.

Pro traders remain skeptical of price recovery

Retail traders usually avoid quarterly futures because of their price difference from spot markets. Nevertheless, they are professional traders’ instruments of choice because they prevent perpetual swings in contract funding rates.

These fixed monthly contracts usually trade at a small premium to the spot markets because investors require more money to hold back the settlement. But this situation is not exclusive to crypto markets, so futures should trade at a 4% to 10% annual premium in healthy markets.

Bitcoin’s futures premium flirted with negative territory in mid-June, which is typically seen during extremely bearish periods. A mere 1% base rate, or annualized premium, reflects the unwillingness of professional traders to create long (bull) positions. Investors remain skeptical of the price rally despite the low cost of opening a bullish trade.

One must also analyze the Bitcoin options markets to rule out externalities specific to the futures instrument. For example, 25% delta bias is a clear sign when market makers and arbitrage tables are overcharging for upside or downside protection.

In bear markets, option investors place higher odds on a price dump, causing the bias indicator to rise above 12%, while the opposite is true during bullish markets.

The 30-day delta bias peaked at 21% on July 14 as Bitcoin struggled to break the $20,000 resistance. The higher the indicator, the less inclined option traders are to offer downside protection.

Recently, the indicator moved below the 12% threshold, entering a neutral zone and no longer sitting at the levels that reflect extreme aversion. Consequently, the options markets are currently showing a balanced risk assessment between a bull run and a retest of the $20,000 area.

Some calculations suggest that the Bitcoin cycle bottom is behind us, but until traders have a better view of the regulatory outlook and centralized crypto service provider liquidity as the Three Arrows Capital crisis unfolds, the odds of breaking above $24,000 remain uncertain.

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