Bitcoin futures enter backwardation for the first time in a year

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Bitcoin (BTC) has a very bearish monthly chart and the sub-$18,000 level seen over the weekend was the lowest price seen since December 2020. The Bulls’ current hope rests on the $20,000 support, but the derivatives metrics tells a completely different story as professional traders are still extremely skeptical.

BTC-USD 12 hour price on Kraken. Source: TradingView

It’s important to remember that the S&P 500 index dropped 11% in June, and even multi-billion dollar companies like Netflix, PayPal and Caesars Entertainment corrected with losses of 71%, 61% and 57%, respectively. has done.

The US Federal Open Market Committee raised its benchmark interest rate by 75 basis points on June 15, and Federal Reserve Chairman Jerome Powell indicated there could be more aggressive tightening as the monetary authority continues to struggle to contain inflation. Is. However, investors and analysts fear the move will increase the risk of a recession. According to a note from Bank of America to customers issued on June 17:

“Our worst fears surrounding the Fed have been confirmed: They fell behind the curve and are now playing a dangerous game of catch up.”

Furthermore, according to analysts at global investment bank JPMorgan Chase, the record-high total stable market share within crypto “points to oversold conditions and significant upside for the crypto markets from here on out.” According to analysts, a low percentage of stablecoins in the total crypto market capitalization is associated with limited crypto potential.

Currently, crypto investors are faced with mixed sentiment amid bearish fears and optimism that reinforces the $20,000 support, as stablecoins may eventually flow into bitcoin and other cryptocurrencies. For this reason, analysis of derivatives data is valuable in understanding whether investors are pricing in higher odds of a bearish trend.

Bitcoin futures premium turns negative for the first time in a year

Retail traders typically avoid quarterly futures because of price differences from the spot markets, but they are a preferred tool for professional traders because they avoid the constant fluctuations in the funding rate of contracts.

These fixed-month contracts typically trade at a slight premium to the spot markets as investors demand more funds to prevent settlement. This situation is not exclusive to the crypto markets. As a result, futures should trade at a 5% to -12% annual premium in healthy markets.

Annual premium for bitcoin 3 month futures. Source: Laevitas

Bitcoin futures premium failed to break above the 5% neutral range, while bitcoin price held firm at the $29,000 support as of June 11. Whenever this indicator fades or turns negative, it is a dangerous, bearish red flag indicating a condition known as backwardation.

To exclude specific externalities for a futures instrument, traders should also analyze the bitcoin options markets. For example, a 25% delta skew shows when bitcoin market makers and arbitrage desks are overcharging for a security up or down.

In a bullish market, options investors place higher odds for the price pump, causing the skew indicator to fall below -12%. On the other hand, a generalized panic of a market generates a positive skew of 12% or more.

Bitcoin 30-Day Options 25% Delta Skew: Source: Lavitas

The 30-day delta skew reached 36% on June 18, the highest ever recorded and typical of extremely bearish markets. Clearly, the 18% rise in bitcoin price from the lows of $17,580 was enough to re-establish some confidence among derivatives traders. While the 25% skew indicator remains unfavourable to downside risks of pricing, at least it no longer sits at a level that indicates excessive divergence.

Analysts expect “maximum losses” ahead

Some indicators suggest that bitcoin could bottom out on June 18, especially since the $20,000 support has strengthened. On the other hand, market analyst Mike Alfred clarified that, in his opinion, “Bitcoin does not liquidate the big players. They will take it to a level that will cause maximum damage to the most exposed players like Celsius.”

As long as traders have a better view of the risks of contamination from the explosion of the Terra ecosystem, the potential bankruptcy of Celsius and the liquidity issues facing them. Three Arrows Capital, another bitcoin price crash seems more likely.

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