Bitcoin Options

Jun 14 2021

Bitcoin derivatives data shows pro traders ignored today’s $41K pump

Sometimes all Bitcoin (BTC) needs to pump 10% is a positive remark from someone like Elon Musk.

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

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.

On the other hand, even potentially negative news seems to have little to no impact during bull runs. For example, on Sept. 26, 2020, Kucoin was hacked for $150 million. The following week, on Oct. 1, the United States Commodity Futures Trading Commission charged BitMEX for operating an unregistered trading platform and violating Anti-Money Laundering regulations.

Two weeks later, police reportedly questioned the founder of OKEx, forcing the exchange to suspend crypto withdrawals. Had this series of negative news happened while Bitcoin was flat or in a bearish phase, the price would have undoubtedly have stalled during a bear market.

*Bitcoin price at Coinbase in USD, Sept. 2020. Source: TradingView*

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 futures contract seller will usually demand a price premium to regular spot exchanges. This situation is not exclusive to crypto markets and happens in every derivatives market because in addition to the exchange liquidity risk, the seller is postponing settlement and this results in a higher price.

The 3-month futures premium (basis rate) usually trades at a 5% to 15% annualized premium in healthy markets. When futures are trading below the regular spot exchange price, it signals a short-term bearish sentiment.

*Huobi 3-month Bitcoin futures basis. Source: Skew*

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.

*Deribit Bitcoin options 25% delta skew. Source: laevitas.ch*

The above chart confirms that top traders, including arbitrage desks and market markers, are currently uncomfortable with Bitcoin price as the neutral-to-bearish put options premium is higher. However, the current 7% positive skew is far from the 20% exaggerated fear seen in late May.

Derivatives markets show no evidence of top traders getting excited about the recent $40,000 hike. On the bright side, there is room for leverage buyers to mount positions. Stronger upswings usually occur when investors are least expecting, 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, you should conduct your own research when making a decision.

Bitcoin derivatives data shows pro traders ignored today’s $41K pump

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May 27 2021

Market enters a ‘wait-and-see phase’ as Bitcoin struggles below $40,000

Price action for Bitcoin (BTC) and the wider cryptocurrency market was relatively subdued on May 27 as nervous traders remain unsure of what comes next following last week’s market plunge that saw leveraged traders wiped out as BTC dipped as low as $30,000 before its price rebounded.

Data from Cointelegraph Markets Pro and TradingView shows that while Bitcoin’s price has managed to put in higher highs and higher lows over the past week, bulls continue to face stiff resistance at any meaningful attempt to break above $40,000 as bears defend the psychologically important level.

*BTC/USDT 4-hour chart. Source:* *TradingView*

For many traders, the recent correction likely triggered PTSD-like flashbacks of the market crash of 2017 and 2018 and the ensuing two-year crypto winter, and this could be a reason why the market seems indecisive at the moment.

Given that many traders are unsure of what might come next for Bitcoin’s price, it’s wise to consider the various bullish and bearish scenarios that could play out and to also take stock of the opinions of analysts in the sector.

Traders remain cautious after the recent sell-off

According to David Lifchitz, managing partner and chief investment officer at ExoAlpha, it’s important to look closely at the recent market events and review the catalysts that created the current situation.

Lifchitz told Cointelegraph that following an “almost uninterrupted bull run from $10,000 in October 2020 to an all-time high for BTC at $65,000 in mid-April 2021,” the market saw several waves of profit-taking ahead of the “great deleveraging of 2021,” which saw the price of BTC fall by 54% to $30,000, while Ether (ETH) and altcoins were hit even harder.

According to Lifchitz, the correction succeeded in “drastically reducing the amount of leverage that prevailed in the ecosystem,” which can be seen as a healthy development for the overall market, as it will help “to build on a more stable base.”

*Estimated leverage ratio for Bitcoin. Source:* *CryptoQuant*

Lifchitz cautioned that while data shows that some early dip-buyers managed to pick up tokens near the lows, both volumes and futures open interest have remained weak, “showing no urgency to reload.”

The monthly options expiration for Bitcoin and Ether are less than 24 hours away, and Lifchitz believes they are standing in the way of “any meaningful move in the very short term.” He also suggested that it will be “difficult to convince burned investors to get back in the game just now” due to a lack of upside catalyst and the recent reminder that “prices do not always go up.”

This has put the market in a “wait-and-see phase,” according to Lifchitz, with both trend followers and contrarian investors needing “to see some motion, either up or down” before they engage in the market.

Lifchitz said:

“The market definitely needs a catalyst, either upward or downward to move ahead. A too long period without any catalyst could lead to investors fatigue who might decide to cash out and seek other pastures, which would act as gravity on cryptos triggering a downward move. The next few days/weeks will be very telling of what to expect next.”

Bullish indicators abound

While the average crypto trader is currently in a state of stasis and awaiting the next major market move to signal what BTC might do next, on-chain data indicates bullish moves from larger players who took full advantage of the recent dip by buying.

According to Micah Spruill, managing partner and chief investment officer at S2F Capital, most of the selling that was seen at the recent lows “has been from newer entrants to the market” who have “been selling at a loss and seem to be exhausted at this point.”

In a conversation with Cointelegraph, Spruill pointed to BTC net transfer volume, which shows that following the bearish downturn between May 17 and 20, “Massive amounts of USDC and USDT have been sent to exchanges (to buy BTC, ETH, etc.) and pull them off to long term storage.”

*BTC net transfer volume to/from all exchanges. Source:* *Glassnode*

Further analysis shows that retail wallets holding between 0.1 and 1 BTC, as well as whale wallets holding between 1,000 and 10,000 BTC, have been accumulating at these levels in preparation for an overall move higher.

Another bullish indicator mentioned by Spruill is entities’ net growth, which “is recovering back to prior levels” and may signal that “the bull market is back in full force” if this trend continues over the next few weeks and the metric resumes its highs.

*Entities net growth for Bitcoin. Source:* *Glassnode*

Overall, Spruill sees a positive move for BTC in the future, although the timing is questionable due to a variety of factors.

Spruill said:

“I think there’s a possibility we could spend an extended period of time (months) between the $30,000 to $42,000 level as the market digests recent events and we endure a mid-cycle re-accumulation period. Alternatively, it’s possible we have a COVID-like recovery whereby we see Bitcoin break outside this range soon and recover much faster than others are expecting.”

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

Market enters a \’wait-and-see phase\’ as Bitcoin struggles below $40,000

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May 04 2021

Pro traders buy the Bitcoin price dip while retail investors chase altcoins

Bitcoin (BTC) has been struggling to sustain the $55,000 support level for the past 16 days, or basically since the April 17 record-high $5 billion long contracts liquidation. The rejection that took place after the $64,900 all-time high had a devastating impact on the sentiment of retail traders, as measured by the perpetual futures funding rate significant drop.

However, despite Bitcoin’s recent underperformance and today’s 6.5% drop, pro traders have been buying the dip for the past 24 hours. These whales and arbitrage desk movements are reflected in the OKEx futures long-to-short ratio, as well as Bitfinex’s margin lending markets. As this buying occurs, retail traders are mainly quiet, which is reflected in the neutral perpetual funding rate.

*USDT-margined perpetual futures 8-hour funding rate. Source: Bybt*

As depicted above, the perpetual futures (inverse swaps) 8-hour funding rate has been below 0.05% for the past couple of weeks. For the end-of-month contracts, prices vastly differ from regular spot exchanges, reflecting the imbalance from longs and shorts leverage.

This discrepancy is why retail traders tend to prefer perpetual futures, albeit with the varying carry cost caused by the funding rate changes.

The current 8-hour fee is equivalent to a 1% weekly rate, signaling a slight imbalance on longs. However, this level is well below the 0.10% and higher rates seen in early April. This data is clear evidence that retail traders aren’t comfortable adding Bitcoin long positions despite the 9% correction in two days.

On the other hand, the top traders’ long-to-short indicator reached its highest level in 30 days, signaling buying activity from whales and arbitrage desks. This indicator is calculated by analyzing the client’s consolidated position on the spot, perpetual and futures contracts. As a result, it gives a clearer view of whether professional traders are leaning bullish or bearish.

*OKEx top traders long-to-short ratio. Source: Bybt*

As shown above, the current OKEx futures long-to-short ratio currently favors longs by 94%. This buying activity was initiated in the early hours of May 4, as Bitcoin broke below $55,000. More importantly, it signals even more confidence than April 14, when BTC hiked to its $64,900 all-time high.

However, to confirm whether this movement is widespread, one should also evaluate margin markets. For example, the leading exchange (Bitfinex) holds over $1.8 billion worth of leveraged Bitcoin positions.

*BTC price (orange, left) vs. Bitfinex long-to-short margin ratio (blue, right). Source: TradingView*

Bitfinex shows spectacular growth in the BTC margin markets with longs over 50x the amount borrowed by shorts. These levels are unprecedented in the exchange’s history and confirm the data from OKEx’s futures markets.

There’s no doubt that professional traders are ultra-bullish despite today’s Bitcoin dip. As for the lack of appetite from retail traders, their focus seems to be currently on altcoins.

Currently, 18 of the top 50 altcoins have rallied 45% or higher in the past 30 days.

The question is, can the altcoin rally continue if BTC fails to produce a new all-time high over the next couple of weeks?

The views and opinions expressed here 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.

Pro traders buy the Bitcoin price dip while retail investors chase altcoins

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Apr 26 2021

Glass half full: Bitcoin options traders neutral after 28% BTC price dip

Bitcoin (BTC) might have recovered from the $47,000 low seen on April 25, but the subsequent 15% bounce was not enough to bring optimism to the BTC options markets. Even at the present $54,000 level, the price remains 17% below the $64,900 all-time high reached on April 14.

The popular Crypto Fear & Greed Index reached its lowest level in 12 months, signaling thatinvestors are closer to “extreme fear,” which is a complete reversal from the “extreme greed” level seen on April 18. This indicator gathers data from price volatility, volume change, social media activity, Bitcoin dominance and recent search trends.

As Bitcoin’s price dropped and then recovered, the more experienced whales and arbitrage desks behind options trading were far from panicking, but their main risk gauge has recently hit a 12-month peak. However, despite these “worsening” conditions, these pro traders are neutral both in skew metrics (options pricing) and the put-to-call ratio (risk exposure).

The adjusted put-to-call options ratio stands neutral

Call options give the buyer the right to acquire BTC at a future date for a fixed price, while the seller is obliged to honor this privilege. For this right, the buyer pays an upfront fee (premium) to the counterparty. Call options are deemed neutral-to-bullish, as they give its buyer the possibility of high leverage with a little upfront investment.

On the other hand, put options provide their buyer a hedge, or protection, from negative price swings. As a result, these are widely used in neutral-to-bearish strategies.

*Deribit BTC open interest by expiry. Source: Laevitas*

As the above chart indicates, both call and put options are balanced, except for Friday’s expiry. Although this could reflect short-term optimism, a more granular view shows that some ultra-bullish call options dominate the scene. Therefore, by adjusting it to a more realistic price range for the next four days, calls and puts are way more balanced.

*Deribit BTC open interest on April 30. Source: Laevitas*

Take notice of how the $72,000–$120,000 call options dominate the April 30 expiry. Therefore, considering the $44,000–$68,000 range exclusively, calls represent 48% of the outstanding open interest.

The options pricing risk indicator is neutral

To correctly interpret how professional traders are balancing the risks of unexpected market moves, the 25% delta skew provides a reliable, instant “fear and greed” analysis.

This indicator compares similar call (buy) and put (sell) options side by side and will turn negative when the neutral-to-bearish put options premium is higher than similar-risk call options. This situation is usually considered a “fear” scenario.

On the other hand, a negative skew translates to a higher cost of upside protection, which is generally interpreted as a “greed” measurement.

*Deribit 90-day BTC options 25% delta skew. Source: Laevitas*

For the first time in 2021, the 25% delta skew has flattened after spending most of the time on the “greed” side. A similar situation emerged on March 25 after BTC corrected 18% from the $61,800 peak 10 days prior.

Overall, the options markets indicators are neutral, indicating a mild lack of trust in the recent $47,000 bounce. On the other hand, the same metrics could be interpreted as positive, considering pro traders did not flip bearish despite the 28% drop in the past 11 days.

Glass half full: Bitcoin options traders neutral after 28% BTC price dip

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