Bitcoin price broke to the upside, but where are all the leveraged long traders?
Most traders are long, meaning they’re betting on Bitcoin to rise. This pressure is causing many crypto whales and exchanges to do what they can to pump the price higher. But it seems these efforts have been successful in creating a short squeeze – something that could be dangerous for investors with leveraged positions like futures or options trading.
The “crypto leverage chart” is a tool that can be used to find the best time to enter or exit a trade. The graph shows how much profit you will make if you are long or short on Bitcoin.
The symmetrical triangular formation that has constrained the price for almost 20 days is breaking to the upside, according to this week’s Bitcoin (BTC) chart. Professional traders, on the other hand, are loath to increase leveraged positions and are overcharging for downside protection, as seen by derivatives measures.
Kraken’s 12-hour BTC-USD pricing. TradingView is the source of this information.
Will BTC reverse direction despite the deterioration of macroeconomic conditions?
The performance of global markets will have an impact on whether BTC can convert the $30,000 to $31,000 level into support.
The last time the stock markets in the United States saw a seven-week decline was over a decade ago. New house sales in the United States have fallen for the fourth month in a row, the longest skid since October 2010.
China’s on-demand services dropped by a stunning 20% year over year, the largest drop on record. Consumer expenditure on internet services was $17.7 billion from January to April, according to government figures published on May 30.
Rising interest rates, inflation, and macroeconomic uncertainty drove investors to seek shelter in cash holdings, causing the value of stock offerings in Europe to plummet to its lowest level in 19 years. Initial public offerings and follow-on deals garnered just $30 billion in 2022, according to Bloomberg.
All of this helps to explain the disparity between the recent Bitcoin price rebound to $32,300 and the lackluster derivatives data, as investors are pricing in a larger likelihood of a crash, mostly due to deteriorating global macroeconomic circumstances.
Metrics for derivatives are neutral to negative.
Since of the price disparity between quarterly futures and spot markets, retail traders normally shun them, while professional traders favor them because they avoid the perpetual contracts’ variable funding rate.
Because investors want more money to withhold the settlement, these fixed-month contracts normally trade at a little premium to spot markets. This isn’t only a problem with crypto markets. As a result, in healthy markets, futures should trade at a 5 percent to 12 percent yearly premium.
The annualized premium for Bitcoin 3-month futures. Laevitas is the source of this information.
Bitcoin’s futures premium has remained below 4% since April 12, according to Laevitas statistics. This number is characteristic of bearish markets, and the fact that the indicator failed to break over the 5% neutral barrier as the price approached $32,000 is concerning.
Traders must also examine the Bitcoin options markets to rule out externalities particular to the futures instrument. When Bitcoin market makers and arbitrage desks overcharge for upside or downside protection, the 25 percent delta skew is ideal.
Options investors assign larger chances for a price fall in adverse markets, leading the skew indicator to rise over 12 percent. The overall exhilaration of a bull market, on the other hand, causes a negative 12 percent or lower skew.
30-day Bitcoin choices a delta skew of 25%: Laevitas is the source of this information.
On May 14, the 30-day delta skew hit a new high of 25.4 percent, which is characteristic with severely negative markets. However, on May 30 and May 31, the situation improved as the indicator steadied at 14%, although it still implies a larger risk of a price fall. Nonetheless, it reveals a slight increase in attitude among derivatives traders.
The risks of a global economic slowdown are probably the main reason why Bitcoin options markets are stressed and why the futures premium is still low. The 30-day correlation of BTC versus the S&P 500 index is at 89%, meaning traders have fewer incentives to place bullish bets on cryptocurrencies.
Some indicators imply the stock market bottomed last week, particularly given it’s now trading 8.5 percent above its intraday low of May 20, but dismal economic data is dragging on investor morale. This contributes to the risk-averse trend, which has a negative effect on cryptocurrency markets.
Bitcoin traders should avoid constructing leveraged long positions and maintain a negative posture until a clearer definition for conventional finance and the world’s largest economies emerges, a trait that is now mirrored in options markets.
The author’s thoughts and opinions are purely his or her own and do not necessarily represent those of Cointelegraph. Every investing and trading decision has some level of risk. When making a choice, you should do your own research.