Bitcoin (BTC) monthly chart is very bearish, and the level below $18,000 seen over the weekend was the lowest price seen since December 2020. A different story as professional traders are still extremely skeptical.
It’s important to remember that the S&P 500 index dropped 11% in June, and even multibillion-dollar companies like Netflix, PayPal and Caesars Entertainment corrected losses of 71%, 61% and 57%, respectively.
The U.S. Federal Open Market Committee raised its benchmark interest rate by 75 basis points on June 15, and Federal Reserve Chair Jerome Powell hinted that a more aggressive tightening may be in store as the authority monetary policy continues to struggle to contain inflation. However, investors and analysts fear this move will increase the risk of recession. According to a Bank of America note to customers issued on June 17:
“Our worst fears around the Fed have been confirmed: they have fallen far behind the curve and are now playing a dangerous game of recovery.”
Furthermore, according to analysts at global investment bank JPMorgan Chase, the total market share of record cryptocurrency stablecoins is “pointing to oversold conditions and significant gains for the cryptocurrency markets here.” According to analysts, the lower percentage of stablecoins in the total cryptocurrency market capitalization is associated with limited cryptocurrency potential.
Cryptocurrency investors currently face mixed sentiment between recession fears and optimism about the $20,000 support gaining traction as stablecoins may eventually flow into Bitcoin and other cryptocurrencies. For this reason, analyzing derivatives data is valuable in understanding whether investors are pricing in higher odds of a downturn.
Bitcoin futures premium turns negative for the first time in a year
Retail traders generally avoid quarterly futures due to the price difference in spot markets, but they are the preferred instruments of professional traders because they avoid the perpetual fluctuation of the financing rate of contracts.
These fixed-month contracts often trade at a small premium on the spot markets because investors demand more money to retain settlement. This situation is not unique to cryptocurrency markets. Consequently, futures must trade at an annualized premium of 5% to 12% in healthy markets.
Bitcoin futures premium has not crossed the 5% neutral threshold, while Bitcoin price has firmly held the $29,000 support through June 11.
To exclude futures instrument-specific externalities, traders should also analyze Bitcoin options markets. For example, the 25% delta slope shows when Bitcoin market makers and arbitrage tables are charging too much for positive or negative protection.
In bull markets, options traders give higher odds for a price bomb, causing the slope indicator to drop below -12%. On the other hand, widespread market panic induces a positive slope of 12% or more.
The 30-day delta slope peaked at 36% on June 18, an all-time high and typical of extremely bear markets. Apparently, the 18% rise in Bitcoin’s price since the bottom of $17,580 was enough to restore some confidence in derivatives traders. While the 25% slope indicator remains unfavorable for pricing downside risks, at least it is no longer at levels that reflect extreme aversion.
Analysts Expect “Maximum Damage” Ahead
Some metrics suggest that Bitcoin may have bottomed on June 18, especially as the $20,000 support gained traction. On the other hand, market analyst Mike Alfred made it clear that, in his opinion, “Bitcoin didn’t just liquidate big players. They will reduce to a level that will do the most damage to the most overexposed players like Celsius.”
Until traders have a better view of the contagion risk from the implosion of the Earth ecosystem, the possible insolvency of Celsius and the liquidity problems faced by Three Arrows Capital, the chances of another Bitcoin price drop are high.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.