Bitcoin (BTC) has a tenacity of over $ 50,000 on March 25th. The 10% drop in the past 24 hours came despite Tesla allowing customers to purchase vehicles using BTC, and CEO Elon Musk assured it will not be converted into fiat currency.
On March 22nd, Federal Reserve Chairman Jerome Powell said Bitcoin was too volatile, “unsupported” and more of an asset for speculation. Oddly enough, on the same day, BTC lost its $ 56,000 support, which became a resistance.
Traders fear the pump may have been news driven while the downtrend move will prevail. While possible, derivatives indicators are not trending bearishly and any decent correction is likely to find strong support at $ 50,000.
However, some of the uncertainty investors may have derived from the record $ 6.1 billion drop on March 26th is already being deemed worthless as BTC price surged above $ 50,000.
In addition, CME holds futures contracts valued at $ 980 million due to expire on the same day. Although buyers (longs) and sellers (shorts) are in agreement at all times, some traders fear that BTC prices may be put under pressure from futures traders who want to carry over their positions to April and May.
In contrast to perpetual futures, these CME contracts with a fixed calendar have a fixed expiration date. So to be long, you have to buy the April or May futures and sell the March contract at the same time.
In order to better assess the impact of whales and arbitrage desks on the market, derivative indicators should be closely monitored.
The futures premium remains bullish
By measuring the cost gap between futures and the regular spot market, a trader can measure the degree of upward movement in the market.
The three month futures typically trade 10% to 20% versus regular cash registers to justify freezing funds rather than cashing them out immediately. Whenever this indicator goes down or goes negative, what is known as “backwardation”, it indicates that the market is bearish.
The graph above shows that the indicator bottomed at 17% on March 25th while BTC was testing the USD 50,000 support. This is extremely bullish as it signals that leveraged buyers remained bullish and unwilling to reduce their positions.
Anytime the base hits 35% or more it indicates extreme leverage from buyers, but this is clearly not the case right now.
The option offset has been neutral since January 19th
When analyzing options, the delta offset of 25% is the most relevant individual measure. This indicator compares similar call (buy) and put (sell) options side by side. Some analysts point to the put-to-call ratio, but that metric doesn’t rule out worthless options like the right to sell BTC for $ 45,000.
Hence, Delta Skew offers a less polluted number and goes negative if the put option premium is higher than call options with similar risk. Such a positive offset results in a higher cost of protection against downward movement, which indicates optimism.
The opposite is true when market makers are bearish and the 25% delta skew indicator is gaining ground positively.
For the past five weeks, the skew indicator has remained unchanged, indicating no optimism or pessimism from whales and option market makers. An offset indicator between negative 10 and positive 10 is considered neutral, which means a balanced risk assessment.
Retailers do not stand behind the high futures base
With futures and options creating a mixed mood, the funding rate for perpetual futures should also be monitored. Such a fee is charged every eight hours to ensure that the futures exchanges do not have any risk imbalances. Wherever it gets positive, it means that buyers (longs) are the ones who pay the carry costs due to the greater use of leverage.
The current average of 0.04% is relatively neutral, which equates to 0.8% per week. While longs face such fees, it is by no means considered costly. This data suggests that retailers are not creating an arbitrage opportunity that results in fixed calendar futures trading at a premium.
Overall, derivatives indicators are healthy considering BTC is down 16% from its all-time high of $ 61,800 on March 13. This data leaves room for further buying activity, so retailers should not consider the current status as unusual.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.