Bitcoin fell to its lowest point since July 13, but data shows that professional traders are still skeptical of a speedy comeback.
On September 6, Bitcoin BTC (1) saw an unexpected price correction that caused it to drop from $19,820 to $18,960 in less than two hours. This led to the largest liquidation of Bitcoin futures at derivatives exchanges in almost three weeks, totaling $74 million. The price of Bitcoin is currently at $18,733, the lowest level since July 13. This level also represents a 24% move toward $20,200 that occurred in the early hours of September 6 but was soon contained; within an hour, it was back near $19,800.
Even more intriguing was the price movement of ether (ETH) (2), which rose 7% in the 48 hours before the market downturn. Any conspiracy ideas about investors shifting their positions to favor altcoins may be disproved because Ether fell 5.6% on September 6, while Bitcoin lost $860, a move of 3.8%.
The market has been stuck in a rut since August 27, when Jerome Powell's remarks at the annual Jackson Hole Economic Symposium triggered (3) a $1.25 trillion loss in U.S. stocks in a single day, and the S&P 500 dropped 3.4% (4). Powell also stated that greater interest rate hikes were still on the table.
Bearish pro traders
Retail traders steer clear of quarterly futures because of their price premium above spot markets. In contrast, professional traders like them as a hedge against the funding rate swings that frequently occur in perpetual futures contracts. The indicator should trade at a premium of 4% to 8% annually in a healthy market to cover costs and associated risks.
As the Bitcoin futures premium stayed below 3% for the entire period, and the data demonstrates professional traders' reluctance to add leveraged long positions, it is safe to assume that derivatives traders have been neutral or negative for the past month.
Additionally, one must examine the available Bitcoin options to determine whether any externalities unique to futures instruments are present. For instance, a 25% delta skew (5) warning indicates that market makers and arbitrage desks are overcharging for upside or downside protection. Investors in bear market options have a higher chance of experiencing a price drop that causes the skew indicator to rise beyond 12%. In comparison, investors in bullish markets prefer to drive the skew indicator below -12%, which means the bearish have options discounted.
These two derivatives metrics imply that the Bitcoin price collapse on September 6 may have been partially anticipated, which would explain the low impact on liquidations. The 30-day delta skew had exceeded the 12% threshold since September 1, with options signaling traders less inclined to offer downside protection.
Comparatively, the August 18 decline in Bitcoin's price of $2,500 resulted in leveraged long liquidations totaling $210 million. There is still a strong bearish attitude that is not always accompanied by negative price movement. When the whales and market leaders are less likely to add leverage to long positions and provide downside protection for employing options, one should proceed with caution.