BTC held the $ 50,000 support level while the derivative indicators were still good, signaling investor optimism.
Bitcoin (BTC) is showing resilience above $ 50,000. The 10% drop has happened despite Tesla allowing customers to buy cars with BTC, along with Elon Musk’s assertion that their BTC holdings will not be converted to fiat money.
On March 22, the President of the US Federal Reserve (Fed), Jerome Powell, declared that Bitcoin is too volatile, not backed by anything, and moreover an asset to speculative. Curiously, on the same day, BTC lost the support of $ 56,000 and turned it into resistance.
Traders are concerned that the pump could be driven by news, while the downtrend will prevail. While this is probable, the derivatives are not inclined to a downtrend, and any correction is likely to face strong support at $ 50,000.
Part of investor uncertainty can stem from a record $ 6.1 billion option expiring on March 26. However, 84% of put options. from neutral to bearish was considered worthless as the price of BTC rose above $ 50,000.
Furthermore, CME holds $ 980 million futures contracts that expire on the same day. Although buyers (Long) and sellers (Short) are matched all the time, some traders worry that the price of BTC might be pressured by traders on the futures market looking to move their positions. in April and May.
Unlike perpetual futures contracts, contracts on these fixed calendar CME have a fixed expiration date. Therefore, to maintain a Long position, one has to buy either the April or May futures contract while selling the March contract.
Therefore, in order to better appreciate the influence of whales and to discuss price differences in the market, one should closely monitor the derivative indicators.
Futures premiums are still increasing
By measuring the cost difference between the futures contract and the regular spot market, traders can gauge how much price increases in the market.
Three-month futures contracts typically trade at 10% to 20% of regular spot trades to justify locking in money rather than instant cash withdrawals. Whenever this indicator fades out or turns negative, called a pullback, it shows that the market is bearish.
The chart above shows that the indicator recently bottomed out at 17% on March 25 while BTC tested the $ 50,000 support level. This is extremely positive as it signals leveraged buyers to remain optimistic and not wanting to reduce their positions.
Whenever the basis reaches 35% or higher, it shows that the buyer’s leverage is extremely high, but it is clearly not.
Option deviation has been neutral since January 19
When analyzing options, the 25% delta deviation is the most suitable measure. This indicator compares similar call options and put options in parallel. Some analysts point to put-to-call ratios, but this metric doesn’t rule out worthless options like the right to sell BTC for $ 45,000.
Therefore, the delta deviation will turn negative when the call option premium is higher than the similar risked call option. Such a positive deviation leads to higher discounted insurance costs, showing optimism.
The opposite happens when the market makers are bearish, causing the 25% delta deviation indicator to be positive.
Over the past 5 weeks, the deviation indicator has remained flat, showing no optimism or pessimism from whales and option market makers. A deviation indicator between negative 10 and positive 10 is considered neutral, meaning a balanced risk assessment.
Retail traders are not behind a high basis of futures contracts
Because futures and options provide mixed psychology, everyone should also keep an eye on the funding rates of futures. Such fees are charged every 8 hours to ensure the derivative exchanges are free of imbalance risk. Wherever it turns positive, it means that (Long) buyers are those who pay execution costs due to using greater leverage.
The current 0.04% average is relatively neutral, or 0.8% per week. Although the Longs faced such fees, it was far from expensive. Such data indicates that retail traders do not create arbitrage opportunities that cause fixed schedule futures contracts to be traded at a premium.
Overall, the derivatives are doing well as BTC is down 16% from its all-time high of $ 61,800 on March 13. Such data leaves room for further buying, so traders present should not be considered anything out of the ordinary.