Home CryptoMarket $15.5K retest is more likely, according to Bitcoin futures and options

$15.5K retest is more likely, according to Bitcoin futures and options

by CryptoFan
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Bitcoin (BTC) has been trading near $16,500 since Nov. 23, after falling to $15,500 as investors fear the imminent bankruptcy of crypto lending and trending firm Genesis Global. recovered. Genesis said on Nov. 16 that it was “temporarily suspending redemptions and origination of new loans in its lending business.”

After causing initial turmoil in the market, the company refuted speculation of an “imminent” bankruptcy on Nov. 22, but acknowledged funding difficulties. More importantly, Genesis’ parent company Digital Currency Group (DCG) owns Grayscale, the asset manager of the Grayscale Bitcoin Trust, which holds approximately 633,360 BTC.

Contagion risk from implosion of FTX-Alameda Research continues to put negative pressure on the market, but the industry is working to improve transparency and bankruptcy risk. For example, on November 24, his crypto derivatives exchange Bybit launched his $100 million fund to help market his makers and high-frequency trading institutions suffering from financial and operational problems.

Most recently, on November 25th, Binance released proof of funds for Bitcoin deposits backed by Merkle Trees. Additionally, the exchange has outlined how users can verify ownership using this mechanism. There is no doubt that centralized institutions must adopt transparency and insurance mechanisms to restore investor confidence.

But first, we need to analyze the Bitcoin derivatives market to fully understand how professional traders digest such news.

Futures Market Discounts Improve Slightly, Still Far From Bullish

Fixed-month futures contracts typically trade at a slight premium over the regular spot market. This situation, technically known as contango, is not unique to cryptocurrencies.

In a healthy market, futures should trade at an annualized premium of 4% to 8%, which is sufficient to offset risk and cost of capital. Conversely, if the demand for a bearish bet is very high, discounts will occur in the futures market. This is known as backwardation.

Bitcoin 2-month futures annualized premium. Source: Laevitas.ch

Considering the data above, it’s clear that derivatives traders turned bearish on Nov. 9 as Bitcoin futures premiums turned negative. However, his $15,500 drop on Nov. 21 wasn’t enough to seep additional demand for his positions in leveraged shorts, according to futures markets.

Options Market Confirms Bearish

Traders should analyze the options market to understand if Bitcoin is likely to retest the $15,500 support. It’s a sign that you’re overcharging for side protection.

This indicator compares similar call (buy) and put (sell) options and is positive when fear is prevalent as the premium for protective put options is higher than for risky call options.

In a nutshell, if traders fear a Bitcoin price crash, the skew indicator is above 10%. On the other hand, generalized excitement reflects a negative 10% bias.

Bitcoin 60 Day Option 25% Delta Skew: Source: Laevitas

As you can see above, the 25% delta skew has crossed the 10% threshold since November 9, indicating that options traders are increasing the risk of an unexpected price decline. . It is now at 18%, indicating investor fear and a lack of interest in providing downside protection.

Related: How bad is the current state of cryptocurrencies? An on-chain analyst explains

Surprise pumps are likely to have a greater impact

Given that both the bitcoin futures and options markets are currently increasing their downside potential, there is no reason to believe that a retest of the bottom of $15,500 will ultimately trigger a massive liquidation.

Moreover, a slight drop in futures discounts shows that the bears are not confident to open leveraged shorts at current price levels. Bitcoin derivatives data remain bearish, but the surprise of him finally rising to $18,000 could wreak even more havoc. But for now, the bears are in control, according to BTC futures and options data.

The views, thoughts and opinions expressed herein are those of the authors only and do not necessarily reflect or represent the views or opinions of Cointelegraph.