Long the Bitcoin Bottom, or Watch and Wait? Bitcoin traders are planning their next move


Bitcoin (BTC) suffered a 9% correction in the early hours of September 19 as the price fell to $18,270. While the price quickly bounced back above $19,000, this level was its lowest price in three months. However, pro traders held their ground and were reluctant to take the loss as measured by derivative contracts.

Bitcoin/USD price index, 2 hours. Source: TradingView

It’s extremely difficult to pin down the rationale behind the crash, but some say US President Joe Biden’s interview on TNZT’s “60 Minutes” has raised concerns about global warfare. When answering whether US forces would defend Taiwan in the event of a China-led invasion, Biden replied, “Yes, if indeed there was an unprecedented attack.”

Others cite the Chinese central bank lowering the borrowing cost of 14-day reverse repurchase agreements from 2.25% to 2.15%. The monetary authority is showing signs of weakness in the current market conditions by injecting more money to stimulate the economy amid inflationary pressures.

There is also pressure from the upcoming meeting of the US Federal Reserve Committee on September 21, which is expected to raise interest rates by 0.75% as central bankers make efforts to ease inflationary pressures. As a result, 5-year government bond yields rose to 3.70%, the highest level since November 2007.

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Let’s take a look at crypto derivatives data to understand whether professional investors changed their position while Bitcoin crashed below $19,000.

There was no impact on BTC derivatives statistics during the 9% crash

Retailers usually avoid quarterly futures because of their price difference to spot markets, but they are the preferred tools of professional traders because they avoid the fluctuation in funding rates that often occur with a perpetual futures contract.

Bitcoin 3-month futures annualized premium. Source: Laevitas

The indicator should trade in healthy markets at an annual premium of 4% to 8% to cover costs and associated risks. So, one can safely say that derivatives traders have been neutral to bearish in the past two weeks as the Bitcoin futures premium remained below 2% the entire time.

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More importantly, the shakeout on September 19 had no significant impact on the indicator, which stands at 0.5%. This data reflects the reluctance of professional traders to add leveraged short (bear) positions at current price levels.

One should also analyze the Bitcoin options to exclude externalities specific to the futures instrument. For example, the 25% delta skew is a telltale sign when market makers and arbitrage bureaus are charging too much for protection up or down.

Bitcoin 30 Day Options 25% Delta Skew: Source: Laevitas

In bear markets, options investors give a higher chance of a price drop, pushing the skew indicator above 12%. On the other hand, bullish trends tend to push the skew indicator below the negative 12%, meaning the bearish put options are discounted.

The 30-day delta skew has been near the 12% threshold since Sept. 15, indicating that options traders were less likely to offer downside protection. The negative price movement on September 19 was not enough to make those whales bearish, and the indicator is currently at 11%.

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Related: Bitcoin, Ethereum Crash Continues as US 10-Year Treasury Yield Surpasses June High

The bottom could be, but it depends on macroeconomic and global hurdles

Derivatives statistics suggest that Bitcoin price decline was partially expected on Sept. 19, explaining why the $19,000 support was regained in less than two hours. Still, none of this matters if the US Federal Reserve raises interest rates above consensus or if stock markets continue to collapse due to the energy crisis and political tensions.

Therefore, traders should continuously scan macroeconomic data and monitor central bank attitudes before attempting to pin a flag on the ultimate bottom of the current bear market. Currently, the likelihood of Bitcoin testing prices below $18,000 remains high, especially given weak demand for leverage longs on BTC futures.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of TNZT. Every investment and trading move involves risks. You should do your own research when making a decision.