Home Market Analysis Bitcoin options still bullish despite this week’s $900 BTC price drop

Bitcoin options still bullish despite this week’s $900 BTC price drop


The $900 Bitcoin (BTC) price drop over the previous two days might need been scary for novice merchants, however these buying and selling futures and options do not appear bothered. 

Cryptocurrency daily market performance snapshot

Cryptocurrency each day market efficiency snapshot. Supply: Coin360

As Bitcoin price rallied to $11,000 on Sept. 19, traders might have turn into overly excited because the price briefly broke an essential resistance stage. 

The regular rally lasted ten days and noticed Bitcoin’s dominance price rebound for a 15-month low and this had some merchants calling for a return to the $12,000 stage.

This sentiment started to shift as soon as it was clear BTC wouldn’t be capable to maintain the $11K mark and the correction to $10,300 had some analysts calling for a sub-$10K CME hole fill. 

Whereas retail traders might have been spooked by the slight correction, skilled traders gauge market circumstances and sentiment by utilizing completely different instruments than these utilized by day merchants and the retail crowd. 

Indicators corresponding to foundation, options skew, and futures open curiosity price present real-time information on how skilled merchants tailored after the drop to $10,300, together with BTC’s temporary rebound to $10,500.

Contracts and liquidations present perception

Step one professional merchants use is to take a look at futures open curiosity information to measure the whole worth of lively contracts. Each time merchants have their positions liquidated on account of inadequate margin, the alternate mechanically closes their positions.

As proven beneath, BTC complete futures open curiosity dropped lower than 5%, remaining at a wholesome $4 billion stage. The present determine is steady in comparison with per week in the past, and signifies that liquidations on account of inadequate margin weren’t that important.

Total BTC futures open interest

Whole BTC futures open curiosity. Supply: Bybt.com

The underwater leveraged longs might undoubtedly have added extra funding to stop their positions from being forcefully closed. To evaluate whether or not this is the case stopping yesterday’s sharp price drop from impacting liquidations, we have to analyze future contracts foundation.

Is there contango or backwardation? 

Foundation can be continuously known as the futures premium, and it measures the premium of longer-term futures contracts to the present spot (common markets) ranges. Skilled merchants are usually extra lively than retail on such devices because of the trouble of dealing with expiry dates. 

These fixed-month contracts often commerce at a slight premium, indicating that sellers request extra money to withhold settlement longer. On wholesome markets, futures ought to commerce at a 5% or extra annualized premium, in any other case generally known as contango.

BTC 3-month futures annualized basis

BTC 3-month futures annualized foundation. Supply: Skew.com

The above chart clearly states that the futures premium (foundation) didn’t abandon its bullish stance, holding a close to 6% annualized stage. Other than a short second on September 3, when Bitcoin confronted a $2,000 drop over two days, the premise indicator has held above 5%.

Nonetheless, this premium might have been attributable to elements indirectly associated to merchants’ bullishness. If competing merchandise in decentralized finance (DeFi) pay excessive incentives for cryptocurrencies deposits, sellers will demand a better premium on future contracts.

To make clear such uncertainty, one ought to flip to Bitcoin options markets. Name options enable the customer to amass BTC at a hard and fast price on contract expiry. However, put options present insurance coverage for patrons and shield towards BTC price drops. For this privilege, the customer pays an upfront premium to the contract vendor.

Each time market makers {and professional} merchants are tending bullish, they may demand a better premium on name (purchase) options. This development will trigger a unfavourable 25% delta skew indicator.

The other will maintain true each time massive traders are fearful a couple of short-to-medium time period price correction. The put (promote) options that shield from draw back ought to commerce at a bigger premium than name (purchase) options throughout bearish markets. This case will lead to a optimistic 25% delta skew indicator.

BTC 3-month options 25% delta skew

BTC 3-month options 25% delta skew. Supply: Skew.com

Though there isn’t any set rule, a 25% delta skew indicator starting from 10% unfavourable to a optimistic 10% stage may very well be deemed impartial. Numbers beneath that vary are nearly actually an indicator of bullishness, and that’s at the moment the case.

Presently, there isn’t any indication of desperation, bearishness, or uncommon exercise relating to BTC futures and options markets. As a substitute, the first metrics present resilience and a slight bullish stance, a state of affairs which is against what one would possibly anticipate after the price failed to interrupt by means of the $11K resistance.

Conventional markets proceed to affect Bitcoin price

Yesterday’s transfer occurred in tandem with a 7.5% enhance within the S&P 500’s volatility (VIX) indicator. 

The VIX has lengthy been thought-about the standard markets main worry indicator. This motion can partially clarify why derivatives merchants weren’t significantly bothered by yesterday’s unfavourable price swing.

BTC (blue) versus S&P 500 VIX (red)

BTC (blue) versus S&P 500 VIX (pink). Supply: TradingView

The above chart exhibits the inverse correlation between the S&P 500 VIX index and Bitcoin price. All through 2020 most intervals of uncertainty in conventional inventory markets have mirrored negatively on Bitcoin’s efficiency.

As a phrase of warning, there is no assure that this correlation will proceed for the rest of the 12 months. Due to this fact, one shouldn’t alter their BTC positions completely based mostly on the strikes talked about in this article. 

Nevertheless, skilled merchants will proceed to maintain a detailed eye on the VIX indicator with a view to resolve whether or not a BTC drop appears strictly stock-market associated.

The views and opinions expressed listed below are solely these of the writer and don’t essentially mirror the views of Cointelegraph. Each funding and buying and selling transfer includes threat. It’s best to conduct your personal analysis when making a call.