Pro Bitcoin Traders Are Not Comfortable With Bullish Positions

The previous support level of $19,000 Bitcoin (BTC) is moving away after the 22.5% gain in nine days. However, little optimism was instilled as the impact of the Three Arrows Capital (3AC), Voyager, Babel Finance and Celsius crises remains uncertain. Additionally, the contagion claimed another victim after Thai crypto exchange Zipmex halted withdrawals on July 20.

Bitcoin/USD 1 day price. Source: Trading View

The bulls’ hopes hinge on the $23,000 support strengthening over time, but derivatives metrics show that professional traders are still very skeptical of a continued recovery.

Macro Headwinds Favor Scarce Assets

Some analysts attribute the strength of the crypto market to weaker-than-expected China gross domestic product data, leading investors to expect further expansionary action from policymakers. China’s economy grew 0.4% in the second quarter from a year earlier as the country continued to grapple with self-imposed restrictions to curb a fresh outbreak of COVID-19 infections, according at CNBC.

UK inflation of 9.4% in June Mark a 40-year high, and to supposedly help people, Chancellor of the Exchequer Nadhim Zahawi has announced a $44.5billion (£37billion) aid package for vulnerable families.

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

However, the cryptocurrency industry faces its own challenges, including regulatory uncertainties. For example, on July 21, the U.S. Securities and Exchange Commission (SEC) labeled nine tokens as “crypto asset securities,” thereby not only falling under the regulator’s purview, but responsible for not not register with it.

Specifically, the SEC referred to Powerledger (POWR), Kromatika (KROM), DFX Finance (DFX), Amp (AMP), Rally (RLY), Rari Governance Token (RGT), DerivaDAO (DDX), LCX and XYO. The regulator has filed charges against a former Coinbase product manager for “insider trading” after he allegedly used nonpublic information for personal gain.

Currently, Bitcoin investors are facing too much uncertainty despite the seemingly favorable macroeconomic backdrop, which should favor rare assets such as BTC. For this reason, an analysis of derivatives data is useful to understand whether investors are pricing downside probabilities higher.

Professional traders remain skeptical of price recovery

Retail traders generally avoid quarterly futures because of their price difference from spot markets. Yet, they are the favorite instruments of professional traders because they avoid the perpetual fluctuation of contract funding rates.

These fixed-month contracts typically trade at a slight premium to spot markets, as investors demand more money to hold settlement. But this situation is not exclusive to crypto markets, so futures should trade at a 4-10% annualized premium in healthy markets.

Annualized 3-month Bitcoin futures premium. Source: Laevitas

The Bitcoin futures premium flirted with the negative zone in mid-June, which is typically seen during extremely bearish periods. The simple 1% base rate, or annualized premium, reflects the reluctance of professional traders to create leveraged long (bullish) positions. Investors remain skeptical of price recovery despite the low cost of opening a bullish trade.

It is also necessary to analyze the Bitcoin options markets to exclude externalities specific to the futures instrument. For example, the 25% delta skew is a telltale sign when market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, option investors give higher odds for falling prices, causing the bias indicator to rise above 12%, while the reverse is true in bull markets.

Bitcoin options 30 days 25% delta skew: Source: Laevitas

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

More recently, the indicator has broken below the 12% threshold, entering a neutral zone and no longer at levels reflecting extreme aversion. As a result, options markets are currently showing a balanced risk assessment between a bull run and a retest of the $20,000 area.

Some metrics suggest the Bitcoin cycle bottom is behind us, but until traders get a better view of the regulatory outlook and centralized liquidity of crypto service providers 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 the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

About Arla Lacy

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