Bitcoin (BTC) faced a 9% correction in the early hours of Sept. 19 as the price fell to $18,270. The price soon took him over $19,000, but this level was his lowest price in three months. However, professional traders were less inclined to hold their ground and accept losses, as measured by derivative contracts.
It’s very difficult to pinpoint the rationale behind the crash, but some say an interview with President Joe Biden on CBS ’60 Minutes’ raised concerns about a world war. Asked whether U.S. forces would defend Taiwan in the event of a US invasion, Mr. Biden replied, “Yes, if there were indeed an unprecedented attack.”
Others cite China’s central bank cutting its borrowing cost for 14-day reverse repo agreements from 2.25% to 2.15%. Monetary officials are showing signs of weakness in current market conditions by pumping more money into stimulating the economy amid inflationary pressures.
There is also pressure from the US Federal Reserve Board meeting scheduled for Sept. 21, with the central bank expected to rush interest rates by 0.75 percentage points to ease inflationary pressures. As a result, the five-year US Treasury yield jumped to 3.70%, its highest level since November 2007.
To understand whether professional investors changed their positions when Bitcoin fell below $19,000, let’s take a look at cryptocurrency derivatives data.
No Impact on BTC Derivatives Indicators During the 9% Crash
While retail traders typically avoid quarterly futures due to price differentials with the spot market, they are the preferred vehicle for professional traders as they avoid the fluctuations in funding rates that often occur with perpetual futures contracts.
This indicator should trade at a premium of 4% to 8% per annum in healthy markets to cover the costs and associated risks. So, it’s fair to say that derivatives traders have been neutral and bearish over the past two weeks as Bitcoin futures premiums have remained below 2%.
More importantly, the Sept. 19 shakeout had no significant impact on the 0.5% metric. This data reflects the unwillingness of professional traders to add leveraged short (bearish) positions at current price levels.
Bitcoin options should also be analyzed to exclude externalities inherent in futures products. For example, 25% delta skew is a sign that market makers and arbitrage desks are overcharging for upside or downside protection.
In a bear market, the skew indicator exceeds 12% as options investors set higher odds for a decline. On the other hand, a bullish trend tends to push the skew indicator below minus 12%, meaning bearish put options are discounted.
The 30-day delta skew has been near the 12% threshold since September 15th, indicating that options traders are less inclined to offer downside protection. The negative price action on September 19 wasn’t enough to make whales bearish, and the indicator is currently stuck at 11%.
Related: Bitcoin, Ethereum Crash Continues as U.S. 10-Year Treasury Yield Surpasses June Highs
A bottom is possible, but that depends on macroeconomics and global hurdles
Derivatives indicators suggest that Bitcoin’s sharp sell-off on Sept. 19 was partly expected, explaining why the $19,000 support recovered within two hours. Still, if the US Federal Reserve hikes interest rates above consensus or the stock market collapses further due to the energy crisis and political tensions, this won’t matter.
Therefore, traders should continuously scan macroeconomic data and monitor central bank attitudes before attempting to flag the bottom of the current bear market. Currently, the likelihood of Bitcoin testing below $18,000 remains high, especially given the weak demand for leverage on BTC futures.
The views and opinions expressed herein are solely author They do not necessarily reflect the views of Cointelegraph. All investment and trading movements involve risk. You should do your own research when making a decision.
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