As a result of Bitcoin failing to gain bullish momentum despite improved spot ETF prospects, BTC derivatives have changed their stance from optimistic to pessimistic.
Since that BTC derivatives are now displaying bearish tendencies, a price correction of Bitcoin BTC $25668 down below $22,000 is more likely than ever.
Given Grayscale’s much-publicized legal victory over the US Securities and Exchange Commission on August 29 and the SEC’s subsequent postponement of numerous requests for spot BTC exchange-traded fund (ETF) listings, it is clear from the Bitcoin price chart that investor sentiment has deteriorated since that date.
The key issue still is whether an ETF’s prospects can justify its rising risks.
Spot Bitcoin ETF mania has subsided:
By August 18, as Bitcoin climbed back to $26,000, the whole 19% surge that had followed BlackRock’s ETF first filing had completely reversed.
Following the good news surrounding Grayscale’s Bitcoin trust request, investors increased the odds of an ETF acceptance, leading to an unsuccessful attempt to retake the $28,000 support.
Price index for bitcoin/USD over one day. the TradingView website
After the S&P 500 index ended trading on September 1 at 4,515, just 6.3% off its all-time high from January 2022, the mood of cryptocurrency investors declined.
Even gold, which has been unable to surpass the $2,000 mark since mid-May, is 6.5% below its all-time high. Because of this, the prevailing sentiment among Bitcoin investors just seven months before its halves in 2024 is undoubtedly less favorable than anticipated.
Some observers blame the continuing legal battles against the two largest exchanges, Binance and Coinbase, for Bitcoin’s underwhelming performance. Furthermore, according to numerous sources, the US Department of Justice (DOJ) is poised to indict Binance in a criminal investigation.
The allegations center on alleged sanctions violations involving Russian firms as well as allegations of money laundering.
The benefits of approving a spot ETF, in Pentoshi’s opinion, outweigh the price consequences of any regulatory action taken against the exchanges.
There is no way to verify whether such an assumption is correct, but such an analysis ignores the fact that U.S. inflation, as measured by the Consumer Price Index, has decreased from 9.1% in June 2022 to 3.2% in July 2023.
In addition, the U.S. Federal Reserve’s total assets have fallen from their most recent peak of $8.73 trillion in March 2023 to $8.12 trillion as of today. This suggests that the monetary authority has been draining market liquidity, which is harmful to the idea that Bitcoin protects against inflation.
Looking at a longer time period, Bitcoin’s price has been maintaining the $25,000 level since mid-March, but a closer look into derivatives data reveals that bulls’ confidence is being put to the test.
The bulls’ appetite for bitcoin derivatives is declining:
Bitcoin monthly futures often trade at a little premium to spot markets, implying that sellers are requesting a higher price to postpone settlement. As a result, in healthy markets, BTC futures contracts should trade at a 5 to 10% annualized premium, a condition known as contango that is not specific to crypto markets.
Monthly futures for bitcoin with an annualized premium. Origin: Laevitas
Since mid-June, before BlackRock filed for a spot ETF, the 3.5% futures premium (base rate) for bitcoin has been at its lowest level. This indicator shows a decline in the demand for leveraged investors using derivatives contracts.
Traders should examine the options markets to determine whether the recent downturn has resulted in a decline in investor optimism. When market makers and arbitrage desks overcharge for upside or downside protection, the 25% delta skew is an obvious clue.
Briefly stated, the skew indicator will increase above 7% if traders expect a decline in the price of Bitcoin, while exciting phases typically have a negative 7% skew.
Bitcoin choices for 30 days 10% delta skew. Laevitas as a source
The protective put (sell) option, which trades at a premium of 9% to comparable call (buy) options on September 4, indicates that the options’ 25% delta skew has recently entered negative territory, as seen above.
Bitcoinfutures predict a next price of $22,000:
Data from bitcoin derivatives suggests that the bearish momentum is intensifying, particularly given that the SEC’s concerns about the lack of measures to prevent a significant portion of trading occurring on unregulated offshore exchanges based on stablecoins could potentially delay the approval of a spot ETF until 2024.
There is no way to ignore the fear, uncertainty, and doubt around future DOJ proceedings or the continuing SEC cases against exchanges, and this ambiguity in the regulatory environment does benefit the bears.
With the recent inability to maintain a strong price momentum despite the increased likelihood of a spot Bitcoin ETF approval, a regression down to $22,000 — the level last observed when Bitcoin’s futures premium was 3.5% — is ultimately the most plausible scenario.