BTC price is caught in the middle of a tug of war, as evidenced by the fact that professional traders are equally pricing risky instruments on the upside and downside.
Bitcoin (BTC) last daily close above $45,000 was 66 days ago, but more importantly, the current level of $39,300 was evident on January 7, 2021. The 13-month trading cycles difficulties culminated in the price of BTC reaching $69,000 on November 10, 2021.
It all started with the rejection of VanEck’s proposed BTC spot exchange-traded fund by the United States Securities and Exchange Commission (SEC) on November 12, 2020. Although the decision was largely expected, the regulator was harsh and direct in the fundamentals that support the decision.
Interestingly, almost a year later, on November 10, 2021, the cryptocurrency markets reached an unprecedented market capitalization of US 3.11 trillion, just as US inflation measured by the CPI index reached 6.2%, a maximum of 30 years.
Inflation also had a negative impact on risk markets, as the US Federal Reserve acknowledged on November 30, 2021, that inflation is more than a “transient” problem and hinted that tapering could occur sooner than expected.
Most recently, on March 10, the US Senate approved a $1.5 trillion package, now awaiting President Joe Biden’s signature. The new money is the first budget increase since former President Donald Trump left office.
Professional Traders are Unwilling to Hold Leveraged Long Positions, According to Data
To understand how professional traders, including whales and market makers, position themselves, it is worth looking at Bitcoin future and option market data. The basis indicator measures the difference between long-term future contracts and current cash market levels.
The annualized premium for Bitcoin future should range from 5% to 12% to compensate traders for “locking up” money for two to three months until contract expiration. Levels below 5% are extremely bearish, while figures above 12% indicate they are bullish.
Still, it would not be wrong to assess that an eventual breakout of the $44,500 resistance would catch those investors off guard, creating strong buying activity to cover short positions.
Options Traders Less Concerned about Downside Risk
Bitcoin currently looks quite indecisive near $40,000, making it difficult to discern a direction in the market. The 25% deviation from delta is a telltale sign whenever arbitrage desks and market makers overcharge for upside or downside protection.
If those traders fear a drop in the price of Bitcoin, the slope indicator will move above 10%. On the other hand, the generalized hype reflects a negative inclination of 10%. This is precisely why the metric is known as the fear and greed metric of professional traders.
According to data compiled and graphed by Laevitas.ch, from February 28 to March 8, the tilt indicator ranged between 7% and 11%. While not exactly a sign of fear, these options traders were overcharging for downside protection by a wide margin.
The last three days showed a marked improvement and currently, the 4% incline shows a more balanced situation. From the perspective of the BTC options markets, there is a similar risk of unexpected price swings both up and down.
The mixed data from Bitcoin derivatives offer an interesting opportunity for the bulls. The cheap futures premium offers long leverage opportunities at relatively low cost and downside protection is running at its lowest level in thirty days.
By Audy Castaneda
