The price of Bitcoin (BTC) climbed over $28,000 on March 21, but according to two indicators in the derivatives market, traders are not overly excited despite an impressive 36% surge in just eight days. Looking beyond the remarkable performance of Bitcoin, there are factors contributing to investors’ lack of full confidence in further price growth. The recent bailout of Credit Suisse, a 167-year-old respected Swiss financial institution, serves as evidence that the ongoing global banking crisis may not have subsided.
On March 19, Swiss authorities announced an “emergency rescue” merger where UBS agreed to acquire Credit Suisse to prevent additional turmoil in the global banking sector. The agreement could receive support exceeding $280 billion from state and central banks, equivalent to one-third of Switzerland’s GDP. Unfortunately, this alliance does not project confidence or strength from financial institutions, including central banks.
The scenario is similar to the emergency credit support provided by the U.S. Treasury to shield the banking sector and bolster FDIC reserves through the “Bank Term Funding Program” (BTFP) launched on March 12. This action marks a reversal to Fed liquidity injections after commencing monthly asset sales in June 2022.
The global banking crisis led the Federal Reserve to shift away from its inflation-control strategies
By extending $300 billion in emergency funds to banks, the Fed entirely deviated from its previous approach to combat inflation, which has exceeded 5% year-over-year since June 2021, well above the 2% target. This shift, known as tightening, involved raising interest rates and reducing the $4.8 trillion in assets accumulated by the Federal Reserve from March 2020 to April 2022.
On March 20, First Republic Bank (FRB) witnessed further downgrades of its credit ratings to junk status by S&P Global, escalating pressures on regional banks in the United States. According to the risk agency, the recent $30 billion deposit boost received by the lender from 11 major banks may not be sufficient to resolve FRB’s liquidity challenges.
Crypto investors are anticipating a disconnection from traditional markets. However, there are currently limited justifications for such a move, especially from corporations, mutual fund managers, or affluent investors. Throughout recessionary periods, investors typically hold cash reserves or short-term government securities to manage day-to-day operations and potentially exploit opportunities.
For instance, the yield on 6-month U.S. Treasuries decreased from 5.33% on March 9 to 4.80% on March 20. This decline suggests a growing demand for short-term instruments as investors brace for potential inflation or recession impacts. The shift since March 9 has reversed the trend from 2022, concluding the year at 4.77%.
Let’s delve into Bitcoin derivatives metrics to evaluate the current stance of professional traders.
Bitcoin derivatives indicate a balanced interest in both long and short positions
Bitcoin quarterly futures, favored by whales and arbitrage desks, typically trade at a slight premium to spot markets, showing that sellers demand more compensation to postpone settlement dates. Hence, futures contracts in healthy markets should maintain a 5% to 10% annualized premium—a condition referred to as contango, common not only in the crypto space.
Since March 15, the BTC futures premium remains steady at 2.2%, suggesting no heightened demand from leveraged buying. Premiums below 5% signify pessimism, which is unexpected following an 36% price increase in eight days.
The lack of interest in leveraged long positions does not guarantee a price drop. Consequently, traders should scrutinize Bitcoin’s options markets to understand how market makers and whales assess future price probabilities.
The 25% delta skew depicts whether market makers and arbitrage desks are overpricing protection against price shifts. During bearish markets, options traders place higher odds on price drops, causing the skew metric to exceed 8%. Conversely, bullish markets drive the skew below -8%, indicating reduced demand for bearish put options.
On March 19, the delta skew crossed the neutral -8% threshold, indicating moderate optimism as call options were in higher demand over put options. However, the optimism dwindled as the 25% skew metric currently sits at -8%, marking a balanced position. Nonetheless, this contrasts the prior week when the skew peaked at 12% on March 13.
Overall, professional Bitcoin traders are generally optimistic up to $26,000. While this outlook isn’t alarming, regaining investor confidence in crypto could be imperative to have any chance of surpassing the $30,000 mark. If a complete banking system collapse looms, investors may seek refuge rather than embracing risks.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their research when deciding.
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