The cryptocurrency market has amassed 12.5% in the past seven days, with a market capitalization of $2.44 trillion. However, the move does not seem to inspire confidence, as the same level was tested 16 days ago, when a 27% retracement was followed by an attempt by Ether (ETH) to break $3,650 over the next six days.
Regulation appears to be a major factor for buyers as the US House of Representatives is expected to vote on a trillion-dollar infrastructure bill this month. In addition to determining who qualifies as an intermediary, the law will introduce anti-money laundering (AML) and know-it-all (KYC) requirements for many types of cryptocurrency transactions, which could also harm DeFi protocols.
The 8 best coding results in 7 and 30 days. Source: CoinMarketCap
As shown above, the negative performance among the top 10 cryptocurrencies has affected investor sentiment over the past 30 days. For this reason, it is important to measure more than just the nominal price of Bitcoin (BTC). Traders should also analyze bitcoin derivatives such as premiums in futures and options.
The futures premium shows that traders are a bit optimistic.
The underlying price is often called the futures premium, and it measures the difference between the long-term futures contract and the current level of the spot market.
In healthy markets, the annual premium is expected to be 5% to 15% in a condition called contango. This difference in price is due to the fact that sellers are asking for more money in order to extend the settlement.
Bitcoin futures contracts for three months annually. Source: Laevitas.ch
As shown above, the current 9% annual premium is neutral, but shows improvement in recent weeks. This suggests that traders are cautiously optimistic, allowing for more influence to be exercised in the long-term once confidence is fully restored.
Options Traders Get Out Of Fear Mode
The options markets should also be analyzed to get rid of the typical externalities of the future instrument.
Delta Slope 25% compare similar call (buy) and put (sell) options. The calculation becomes positive when the “fear” spreads, since the premium for protective put options is higher than that of the corresponding risk calls.
And vice versa when market makers are bullish, causing the delta skew of 25% to turn into a negative range. Values ranging from negative 8% to positive 8% are generally considered neutral.
Parameters Deribit BTC delta deviation of 25%. Source: Laevitas
Notice how the Bitcoin alternative traders reached the “Fear” level on September 25 when they tested the $41,000 support multiple times. However, there has been a sharp change since September 30th and the index is now in neutral territory.
In the present situation, both the future basis and the alternative deviation of 25% show a typical half-glass scenario. This means that even though Bitcoin reached a 27-day high and crossed the $50,000 resistance level, buyers could still have an additional impact before the accounts show signs of overexpansion or euphoria.
The $50,000 breakout with today’s scarce derivatives data is usually interpreted as weakness. However, given that the total market capitalization of cryptocurrencies is still at the same level as it was 30 days ago, and the regulatory requirements are unconditional, there is no need to worry. At the moment, neither the futures markets nor the options markets are showing signs of a downtrend.