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Although the price of bitcoin has risen by 10% to $41,000, derivatives indications imply that elite traders are not that positive.
Sometimes all it takes for Bitcoin (BTC) to increase by 10% is a good word from someone like Elon Musk.
The Tesla CEO has been blamed for the current fall following the company’s May 12 statement that it will no longer accept Bitcoin payments due to environmental concerns. Musk went on to claim that he was looking at different coins that used 99 percent less energy.
However, on June 13, the situation reversed as Musk reassured the public that Tesla did not sell any additional Bitcoin. The post also said that the electric-car producer would resume taking BTC payments as soon as its Bitcoin mining relied 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 as soon as bullish or bearish signals and news flash, top traders tend to act more with more caution. Those who have been around the crypto markets long enough know that positive news might end up being ignored or severely downplayed in bear markets.
During bull runs, however, even potentially unfavourable news appears to have little to no influence. Kucoin, for example, was hacked for $150 million on September 26, 2020. The next week, on October 1, the Commodity Futures Trading Commission accused BitMEX with running an unlicensed trading platform and breaching anti-money laundering standards.
Two weeks later, police allegedly questioned OKEx’s founder, causing the exchange to cease cryptocurrency withdrawals. If this string of bad news had occurred while Bitcoin was flat or in a bearish phase, the price would almost certainly have halted during a bear market.
As shown above, Bitcoin barely had any negative impact in late September and October 2020. In fact, by 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.
The 3-month futures premium is neutral
A vendor of futures contracts will often seek a price premium above conventional spot trades. This condition is not unique to crypto markets; it occurs in all derivatives markets since, in addition to the exchange liquidity risk, the seller is delaying settlement, resulting in a higher price.
In healthy markets, the 3-month futures premium (base rate) often trades at a 5% to 15% annualised premium. When futures trade below the ordinary spot exchange price, it indicates a pessimistic mood in the short term.
As shown above, the future basis has been below 11% since May 20 and flirting with bearish territory on multiple occasions as it tested 5%. The current level indicates a neutral position from top traders.
The options skew is no longer signaling fear
The 25% delta skew compares similar call (buy) and put (sell) options side-by-side. It will turn positive when the protective put options premium is higher than similar risk call options.
The opposite holds when market makers are bullish and this causes the 25% delta skew indicator to enter the negative range.
The preceding chart reveals that professional traders, including arbitrage desks and market makers, are now uneasy about Bitcoin’s price because the premium for neutral-to-bearish put options is greater. However, the current 7% positive tilt is a long cry from the 20% excessive concern experienced in late May.
There is little sign of elite traders getting enthused about the recent $40,000 increase in derivatives markets. On the plus side, there is still time for leverage buyers to take positions. Stronger upswings tend to emerge when investors are least expecting them, and the current situation appears to be a prime example.