Bitcoin (BTC) has been on an upward trend since mid-July, with the current upward channel keeping the $21,100 support level intact. This pattern has been holding for the past 45 days and could potentially push BTC towards $26,000 by the end of August.
Data from Bitcoin derivatives suggests that investors are pricing in higher chances of a market downturn. However, recent improvements in the global economic outlook could catch the bears off guard.
Investors are cautious due to the correlation of Bitcoin with traditional assets, especially in light of recession risks and escalating tensions between the United States and China ahead of House Speaker Nancy Pelosi’s visit to Taiwan. Chinese officials have threatened action if Pelosi proceeds with her visit.
The recent interest rate hikes by the U.S. Federal Reserve to combat inflation have added further uncertainty for risk assets, hindering the recovery of crypto prices. Investors are hoping for a controlled economic slowdown where the central bank can gradually withdraw its stimulus without causing significant economic repercussions.
The correlation metric measures the relationship between two assets, ranging from -1 (opposite movements) to 1 (perfectly correlated movements). A value of 0 indicates no significant relationship between the assets.
Currently, the correlation between the S&P 500 and Bitcoin over a 40-day period stands at 0.72, a trend that has held steady for the past four months.
On-chain Analysis Indicates a Possible Bear Market
Glassnode’s “The Week On Chain” report from August 1 pointed out Bitcoin’s weak transaction volume and block space demand, resembling the conditions of the 2018-2019 bear market. An uptrend in on-chain activity, indicated by Active Addresses breaking above 950k, would signal potential market strength and demand recovery.
While on-chain metrics are crucial, traders should also monitor the positions of whales and market makers in the futures and options markets.
Bitcoin Derivatives Data Shows Confidence Levels of Professional Traders
Professional traders and arbitrage desks often prefer monthly futures contracts due to their fixed settlement dates and stable funding rates, unlike retail traders who stick to spot markets. These contracts typically trade at a premium to spot markets, known as “contango,” to compensate for risks and capital costs.
Ideally, futures should trade at a 4% to 8% annualized premium in healthy markets. However, Bitcoin’s futures premium has been below 4% since June 1, although this is not alarming considering BTC’s 52% decline year-to-date.
When analyzing Bitcoin options markets, the 25% delta skew indicates whether whales and market makers are pricing upside or downside protection. A skew above 12% signals concerns of a price crash, while a skew below -12% may indicate bullish sentiment.
Since July 17, the skew indicator has been below 12%, suggesting a neutral stance among options traders. Despite the recent rally towards $24,500 on July 30, Bitcoin derivatives metrics remain neutral, indicating that professional traders are cautious about a sustainable uptrend.
Thus, considering a bullish position might be contrary to the current sentiment but could offer an intriguing risk-reward opportunity.
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