Bitcoin Struggles After $28,000 Resistance, Derivatives Metrics Reflect Market Fear
Summary:
Bitcoin faced a 4.9% correction over four days post its failure to surpass the $28,000 resistance on Oct. 8. Despite the decline, Bitcoin has outperformed gold and Treasury Inflation-Protected bonds, maintaining its position at $27,700. Based on June's all-time high of $1.3 trillion, Bitcoin investors express dissatisfaction despite surpassing global payment processor Visa's and Exxon Mobil's market capitalizations. Derivatives metrics suggest declining demand from bulls and increased fear, prompting concerns about market direction. These dynamics are influenced by the repeated deferment of Bitcoin spot ETF decisions by the U.S. Securities and Exchange Commission and concerns regarding exchanges' exposure to terrorist organizations.
After an unsuccessful attempt to exceed the $28,000 resistance point on October 8, Bitcoin (BTC) experienced a correction of 4.9% over the subsequent four days. This led to a dominance of fear in the market sentiments, as indicated by derivatives metrics. But, is this enough to impact Bitcoin's current price range?
From a broader perspective, Bitcoin has been performing commendably when compared with gold, which saw a decrease of 5% since June, and Treasury Inflation-Protected bonds (TIP), which experienced a downturn of 4.2% during the same timeframe. With a steady stance at $27,700, Bitcoin has outshone two of the most reliable assets of traditional finance.
Taking into account Bitcoin's price rejection at $28,000 on Oct 8, it is important for investors to evaluate BTC derivatives metrics to recognize if bears have greally taken hold.
Treasury Inflation-Protected Securities are US governmental bonds tailored to provide a shield against inflation. Therefore, ETF's value generally swells with rising inflation as bond principal and interest payments are adjusted to inflation, ensuring preservation of purchasing power for investors.
Despite the impressive milestone of hitting $27,600, Bitcoin enthusiasts may not be completely content with its current market capitalization of $520 billion, even though it exceeds those of global payment processor Visa and Exxon Mobil. Such bullish expectation is partially based on Bitcoin's previous November 2021 all-time high of $1.3 trillion.
It's worth mentioning that the DXY index, which compares the U.S. dollar with several foreign currencies, is approaching its peak level in ten months. This signifies a potent endorsement of the vigor of the U.S. economy, at least proportionately. This alone could validate the decreased interest in alternative investment vehicles like Bitcoin.
Even though a gain of 3% in the S&P 500 index since June might seem contrary to the idea of investors seeking cash positions, the top 25 companies own a joint $4.2 trillion in cash and equivalents, with excellent profitability. That's why stocks are being used as a hedge rather than a high-risk investment.
Despite the decent performance of Bitcoin, the overall sentiment seems to fluctuate when we inspect BTC derivatives metrics. Initial observation suggests a declining demand from bull traders.
Bitcoin's futures contract premium (basis rate) hit a four-month low recently. In a healthy market, Bitcoin monthly futures usually trade at a minor premium above spot markets, indicating sellers demand more for delayed settlement. As a result, futures contracts should normally trade at an annualized premium of 5-10%, a case not exclusively true for crypto markets.
Data reveals the current 3.2% futures premium (basis rate) has reached its lowest since mid-June, prior to BlackRock applying for spot ETF, indicating a diminished interest from leverage buyers, though it doesn't necessarily imply bearish expectations.
To evaluate whether the rejection at $28,000 on Oct 8 led to a drop in investor optimism, one should consider Bitcoin options markets. Especially revealing is the 25% delta skew, particularly when market makers and arbitrage desks charge excessively for upward or downward protection.
Considering Bitcoin options, 25% delta skew switched to "fear mode" on Oct 10, with protective put options currently trading at a 13% premium against similar call options.
The BTC derivatives metrics indicate lessening trader confidence, partly due to the repeated delays in Bitcoin spot ETF decisions by the U.S. Securities and Exchange Commission, and worries about exchange exposure to terrorist organizations.
At present, the negative sentiment toward cryptocurrencies appears to outweigh the potential benefits of macroeconomic instability and Bitcoin's predictable monetary policy. From a derivatives viewpoint, the chance of Bitcoin's price surpassing $28,000 in the near future seems unlikely.
This piece is offered for informational purposes only and shouldn't be misunderstood as legal or investment advice. The views and thoughts expressed herein solely represent the author's and don't necessarily correspond with or represent Cointelegraph's opinions and views.
Published At
10/12/2023 7:16:59 PM
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