Cryptocurrency News

Bitcoin Derivatives Data Shows Pro Traders Ignored Today’s $41K Pump


Sometimes all bitcoins (B T c) needs to pump 10% is a positive comment from someone like Elon Musk.

The Tesla CEO has been pointed out as the culprit for the recent downturn following the company’s May 12 announcement that it would no longer accept bitcoin payments due to environmental concerns. Musk followed up by saying that he was looking at other cryptocurrencies, which required 99% less energy consumption.

However, on June 13, the situation reversed as Musk reassured the public that Tesla no extra bitcoins sold. The post also states that the electric-car maker will resume taking BTC payments as soon as bitcoin mining is reliant on a minimum of 50% clean energy.

In bear markets, top traders act with caution

While retail investors and algorithmic trading bots jump into action in the form of bullish or bearish signals and news flashes, top traders act more with more caution. Those who have been in the crypto market long enough know that positive news in bear markets can be overlooked or severely undervalued.

On the other hand, even potentially negative news has little or no effect during a bull run. For example, on September 26, 2020, Kucoin was hacked for $150 million. Next week, on October 1, United States Commodity Futures Trading Commission BitMEX charged for operating an unregistered trading platform and are violating anti-money laundering regulations.

Two weeks later, police reportedly questioned the founder of OKEx, Forcing Exchange to Suspend Crypto Withdrawals. If this series of negative news were to happen during a Bitcoin flat or a bearish phase, the price would undoubtedly have stalled during a bear market.

Bitcoin price on Coinbase in USD, September 2020. Source: TradingView

As seen above, there was hardly any downside to bitcoin in late September and October 2020. In fact, as of the end of November 2020, bitcoin was up 74% in two months. This is the main reason why top traders tend to ignore positive news during bear markets and vice versa.

3-month futures premium is neutral

A futures contract seller will typically demand a price premium to regular spot exchanges. This situation is not specific to crypto markets and occurs in every derivatives market because in addition to the exchange liquidity risk, the seller is postponing the settlement and resulting in a higher price.

In healthy markets, the 3-month futures premium (base rate) typically trades at a 5% to 15% annual premium. When futures are trading below the regular spot exchange price, it indicates a short-term bearish sentiment.

Huobi 3 Month Bitcoin Futures Basis. Source: slant

As shown above, the futures base has been below 11% since May 20 and has flirted with the bearish zone on several occasions as it tested 5%. Current levels indicate neutral positions for top traders.

Option slant no longer indicating fear

The 25% delta skew compares the same call (buy) and put (sell) options side-by-side. It will turn positive when the premium of the protective put option is higher than that of the call option with the same risk.

The opposite occurs when market makers are bullish and this causes the 25% delta slant indicator to enter the negative range.

Deribit bitcoin option 25% delta skew. Source: laevitas.ch

The above chart confirms that top traders, including arbitrage desks and market markers, are currently uneasy with the price of bitcoin as the neutral-to-bearish put option premium remains high. However, the current 7% positive skew is a far cry from the 20% exaggerated fear seen at the end of May.

The derivatives market shows no evidence of top traders being excited about the recent $40,000 hike. On the bright side, there is room for leveraged buyers to mount positions. Strong volatility typically occurs when investors are least expecting it, and the current scenario seems to be a perfect example.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, so you should do your own research when making a decision.