Despite a 10% 4-day correction to USD 38,200, most holders have chosen to stay on the sidelines. Traders became more uneasy when Bitcoin tested the USD 39,000 support, but no data indicates whether it will continue dropping.
The worsening situation in traditional markets may have maintained the price of Bitcoin (BTC) below USD 40,000 for three days in a row. For example, the S&P 500 index has gone down by 5% since April 20th. Besides, the WTI crude oil price has dropped by 9.5% in a week, erasing all gains since March 1st.
Meanwhile, Shanghai has struggled to control the worst COVID-19 outbreak in China despite strict lockdowns. Timothy Moe, the chief Asia-Pacific equity strategist at Goldman Sachs, considers it makes sense to worry about that disease, as it affects the economy.
Investors Choose to Move Away from Risky Assets
The steady deterioration of the global macroeconomic scenario led investors to take profits from riskier assets. That caused the US dollar currency index (DXY) to reach its highest level at 101.8 in 25 months.
Jared Huffman and 22 other US House of Representatives members have contributed to regulatory uncertainties affecting cryptocurrency mining. On April 21st, they asked the Environmental Protection Agency to assess whether that activity violated environmental statutes.
The price of Bitcoin has undergone a 10% 4-day correction to USD 38,200 since April 25th. However, most holders have chosen to stay on the sidelines, as data from Glassnode confirms. The share of supply inactive for at least one year is at an all-time high of 64%. For that reason, it is relevant to see whether the recent price rejection has influenced the mood of derivatives traders.
Derivatives Markets Show that Traders Are Bearish on Bitcoin
Traders have to look at the premium (basis) on Bitcoin futures to understand whether the market is bearish. As those fixed-date futures have no funding fee, their price will differ considerably from regular spot exchanges.
Futures should trade at an annualized premium of 5% to 12% in a healthy market. However, the Bitcoin basis went below that threshold on April 6th and is currently 2%. In other words, futures markets have assessed bearish momentum over the last two weeks.
To rule out externalities specific to the futures instrument, traders should also look at options markets. For example, the 25% delta slope compares similar call and put options.
That indicator will turn positive with prevailing fear, as the premium for protective put options is higher than for similarly risky call options. However, the opposite is true when greed arises, causing the 25% tilt indicator to move into the negative zone.
The slope indicator would move above 8% if option investors feared there would be a drop in the price. In contrast, the general hype reflects a negative inclination of 8%. On April 7th, the metric went down and has remained above the threshold level since then.
Traders Will Resist an Eventual Rise in Price
According to derivatives indicators, Professional Bitcoin traders became more uneasy when Bitcoin tested the support at USD 39,000.
No data can predict whether Bitcoin will continue its downward trend, but current information indicates that traders overload downside protection. For that reason, traders will question any surprise recovery in the price.
By Alexander Salazar
