As a seasoned researcher with over a decade of experience in financial markets, I’ve seen my fair share of market swings and economic cycles. The recent dip in Bitcoin price to $67,000 caught my attention, not just because it was a significant drop, but because the derivatives markets seemed surprisingly calm.
On October 21st, the price of Bitcoin (BTC) dropped to $67,000, canceling out the progress made over the past three days. Some experts attribute this dip to investors decreasing their Bitcoin holdings due to concerns about market contagion from traditional financial sectors. Yet, it’s worth noting that BTC derivatives indicators showed a surprising level of consistency during this period.
As a crypto investor, I’ve noticed that despite worries about various economies slowing down or doubts about governments managing their debt, the demand for Bitcoin derivative products as a protective measure has remained relatively stable. If large investors (whales) or arbitrage desks had predicted a significant drop, we would have seen more market volatility in these metrics.
Bitcoin futures show no signs of bearish bets
On October 21st, the Bitcoin futures premium, which usually influences market sentiment by up to 10% in normal conditions, showed minimal effect. When the cost of monthly Bitcoin futures is higher, it suggests a longer settlement period and indicates a bullish outlook if the premium rises above 10%.
On October 21st, the yearly rate for premiums (or interest rates) stayed above 9%, despite Bitcoin approaching its $67,000 support level for a retest. But before reaching any conclusions, it’s crucial to verify if this trend was unique to Bitcoin futures markets. At first glance, Bitcoin’s price fluctuations seem to align with the daily trends observed in the stock market, according to chart analysis.
Arif Husain, who leads the fixed-income department at T. Rowe Price, shared with Bloomberg his prediction that the yield on 10-year U.S. Treasury notes could surpass 5% within the next six months. This forecast is based on growing anticipation of higher inflation and worries about increased government spending, which he suggested are driving this trend. When investors decide to sell their bonds, it typically means they’re seeking better returns, causing yields to rise.
Husain pointed out that the government plans to increase the supply of new bonds significantly, while the Federal Reserve aims to reduce its assets to combat inflation and avoid an overheated economy. With U.S. debt interest expenses exceeding $1 trillion per year, there are discussions about lowering interest rates by the central bank.
Bitcoin price has yet to decouple from stocks
In the midst of economic unpredictability, my analysis suggests that Fear, Uncertainty, and Doubt (FUD) have played a substantial role in shaping the fluctuations in Bitcoin’s market value.
Over the past month, Bitcoin and traditional markets like the S&P 500 have shown a strong relationship, with their movements being quite similar, as the 40-day correlation between them has been consistently above 80%. Previously, Bitcoin was thought to be uncorrelated due to its occasional disassociation from the S&P 500. However, recent trends suggest otherwise.
Instead of the time frame from mid-July to mid-September, where Bitcoin and the S&P 500 showed either a weak or non-existent relationship, current data indicates that these two markets are being influenced by similar factors. This notion is strengthened by the rising correlation between Bitcoin and gold, which reached over 80% on October 3.
In simpler terms, Bitcoin options markets provide evidence supporting the idea of derivative market stability. A measure known as the 25% delta skew indicates that traders prefer buying call options over put options, with puts priced lower than calls that are equal in value.
Normally, a range from -7% to +7% is seen as neutral, and the present value falls on the edge of being neither bearish nor bullish, but leaning slightly towards a bullish market.
From my perspective as an analyst, it’s evident that Bitcoin‘s recent price drop didn’t trigger a panic response among derivatives traders. If they were anticipating a continued downtrend, the skew would have moved towards zero or higher. However, this hasn’t been the case, suggesting that Bitcoin derivatives remain robust despite the price fluctuation.
This article serves as a source of general knowledge and shouldn’t be interpreted as legal or financial guidance. The perspectives, beliefs, and viewpoints shared here belong solely to the author and may not align with those held by CryptoMoon.
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2024-10-22 00:05