Over the past two months, Bitcoin has lost ground to most cryptocurrencies, but that trend was reversed when a 20% rise pushed market value towards the $ 1 trillion mark on October 6. It is currently red.
The current positive momentum could be dangerous if Bitcoin (BTC) traders become convinced and abuse the exploitation to go long. To avoid this, traders must carefully analyze derivatives markets to rule out these risks.
Top 14 currencies every week. Source: CoinMarketCap
Note that the market value of altcoins increased by 5.8%, while Bitcoin recorded a 20.8% rise over the same period. Of course, there are some extremes like Shiba Inu (SHIB), which is up 200%, Fantom (FTM), which is up 60%, and Klaytn (KLAY), which is up 36%. However, the total market value of altcoins did not match the dynamics of bitcoins.
Some celebrities have spoken, such as Wall Street billionaire investor Bill Miller, who recently expressed optimism about bitcoin while also worrying about most altcoin projects. Miller explicitly referred to the involvement of “big banks” and noted the “huge amounts” of venture money flowing into bitcoin.
The recent Bitcoin craze seems to be driven by macroeconomic scenarios. The United States has raised its debt ceiling by $ 480 billion to pay off its obligations by early December. Inflationary pressures from endless stimulus packages and low interest rates have led to long-term increases in commodity prices.
For example, oil hit the seven-year mark and wheat futures recently hit a record high not seen since February 2013. Even the S&P Case-Shiller Home Price Index posted a 23.3% year-on-year gain.
To understand if Bitcoin traders are overly motivated, traders should analyze Bitcoin derivatives indicators such as premiums in the futures markets and options.
The futures premium shows that traders are a bit optimistic.
The base price measures the difference between a long-term futures contract and current levels in the spot market. This index is often referred to as the futures premium.
Annually for 3 month bitcoin futures. Source: Laevitas
In healthy markets, an annual premium of 5% to 15% is expected – a situation known as contango. This price difference is due to the fact that sellers are asking for more money in order to delay settlement for a longer period.
Bitcoin’s recent 20% rally has pushed the index to the top of this neutral territory, which means investors are optimistic but not overconfident yet. When buyers demand excessive influence, the base price can easily surpass 25%, as we saw in mid-May.
To exclude externalities from a futures instrument, it is also necessary to analyze the options markets.
Bitcoin options suggest a ‘neutral’ feel
A delta bias of 25% compares similar alternatives to call (buy) and sell (sell). This indicator will be positive when “fear” is spreading, when traders expect a potential loss.
The opposite is true when option traders are bullish, which causes the 25% delta rejection indicator to turn into negative territory. Values between -8% and + 8% are generally considered neutral.
Deribit BTC options 25% delta deviation. Source: Laevitas
The chart above shows that in the past six months there hasn’t been a single example of options traders becoming overconfident, which could indicate “greed” as the 25% delta deviation fell below -8%. Meanwhile, the index hovered around 0 last week and shows balanced risk between short and bullish trades.
These results necessarily demonstrate consumer distrust, and vice versa. If Bitcoin bulls were too safe at $ 57,000, there wouldn’t be much room for further influence, which increases the risk of a reverse liquidation if a price correction occurs during the day.
The bulls are moderately confident, and even a 20% price correction is unlikely to change the situation, as the underlying futures market is showing a reasonable premium since the last rally.
