Bitcoin Tops $40,000, Derivatives Indicators Show Professional Traders Not Yet Bearish

There is no evidence that top traders are excited about the recent $40,000 rally. But on the bright side, there is still room for leveraged buyers to increase their positions.

Bitcoin Tops ,000, Derivatives Indicators Show Professional Traders Not Yet Bearish

Sometimes all it takes for bitcoin to pump up 10% is a positive comment from a figure like Elon Musk.

On May 12, after Tesla announced that it would no longer accept bitcoin payments for environmental reasons, the company’s CEO was cited as the culprit for the recent economic downturn. Musk then said he was looking into other cryptocurrencies that consume 99 percent less energy.

The situation was reversed on June 13 with Musk assuring the public that Tesla would not sell any additional bitcoins. The post also stated that the electric car maker would resume accepting BTC payments as long as its bitcoin mining relied on at least 50 percent clean energy.

In a Bear Market, Top Traders Act Cautiously

While retail investors and algorithmic trading bots act on bullish or bearish signals and news as soon as they appear, top traders tend to act more cautiously. Those who have been in the cryptocurrency market for a long time know that good news can end up being ignored or severely underestimated in a bear market.

On the other hand, during a bull market, even potentially negative news seems to have little to no impact. For example, on September 26, 2020, Kucoin was hacked and lost $150 million worth of crypto assets. The following week, on October 1, the CFTC charged BitMEX with operating an unregistered trading platform and violating anti-money laundering regulations.

Two weeks later, police reportedly questioned OKEx’s founders, forcing the exchange to suspend cryptocurrency withdrawals. If this series of negative news happens while Bitcoin is flat or in a bear market phase, the Bitcoin price will undoubtedly stagnate in a bear market.

Bitcoin Tops ,000, Derivatives Indicators Show Professional Traders Not Yet Bearish

Bitcoin price (in USD) on Coinbase in September 2020 Source: TradingView

However, as the chart above shows, Bitcoin was barely negatively affected at all in late September and October 2020. On the contrary, in fact, by the end of November 2020, Bitcoin had risen 74% in two months. This is the main reason why top traders tend to ignore positive news during bear markets, and vice versa.

3-month futures premiums are neutral

Sellers of futures contracts typically demand a price premium to the regular spot exchanges. This is not limited to the cryptocurrency market, it happens in every derivatives market because in addition to exchange liquidity risk, sellers will delay settlement, which will lead to higher prices.

In a healthy market, the annualized premium for the 3-month futures premium (prime rate) is typically 5% to 15%. This implies short-term bearish sentiment when futures prices are lower than regular spot trading prices.

Bitcoin Tops ,000, Derivatives Indicators Show Professional Traders Not Yet Bearish

Huobi’s 3-month Bitcoin futures base. Source: Skew

As the chart above shows, the futures basis has been below 11% since May 20 and has entered bearish territory several times when testing 5%. Current levels indicate a neutral stance by top traders.

Options skew is no longer a sign of fear

The 25% delta skew indicator is an option pricing risk indicator that provides reliable, immediate “fear and greed” analysis. The indicator compares similar call (buy) and put (sell) options side-by-side. When the protective put option premium is higher than a similarly risky call option, the price will turn positive. The opposite is true when market makers are bullish, which causes the 25% delta skew indicator to move into the negative range, which is often interpreted as “greed”.

Bitcoin Tops ,000, Derivatives Indicators Show Professional Traders Not Yet Bearish

Deribit bitcoin options 25% delta skew indicator. Source: laevitas.ch

The chart above confirms that top traders, including arbitrageurs and market makers, are currently uneasy about bitcoin prices due to higher premiums on neutral to bearish puts. However, the current 7% positive skew is well below the 20% “exaggerated fear” seen in late May.

The derivatives market shows no evidence that top traders are excited about the recent $40,000 increase. On the bright side, there is still room for leveraged buyers to increase their positions. Stronger rallies usually occur when investors least expect them, and the current situation seems to be a perfect example.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/bitcoin-tops-40000-derivatives-indicators-show-professional-traders-not-yet-bearish/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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