Bitcoin has been trading around $16,500 since November 23. Investors feared that crypto lending and trend company Genesis Global would soon go bankrupt. Therefore, BTC dropped to $15,500 on November 21. Genesis stated on November 16 that it will “temporarily suspend redemptions and new credit formations.” Meanwhile, BTC futures and options contracts point to interesting data. Here are the details…
The market was affected by many news
As we reported on cryptokoin.com, Genesis denied bankruptcy speculations on November 22. However, he confirmed that he is having difficulties in raising funds. More importantly, Genesis’ parent company was Digital Currency Group (DCG). DCG owns Grayscale, the asset manager behind the Grayscale Bitcoin Trust, which holds approximately 633,360 BTC. Contagion risks from the FTX-Alameda Research explosion continue to put negative pressure on markets.
But the industry is working to improve transparency and bankruptcy risks. For example, on November 24, crypto derivatives exchange Bybit launched a $100 million fund to assist market makers and high-frequency trading institutions struggling with financial or operational difficulties. More recently, on November 25, Binance released MerkleTree-backed proof of funds for Bitcoin deposits.
Also, the exchange outlined how users can use the mechanism to verify their assets. According to many in the market, central institutions should regain the trust of investors. For this, it should adopt transparency and insurance mechanisms. However, it is necessary to look at the Bitcoin derivatives markets to fully understand how professional traders digest such news.
Futures market slightly improved but far from bullish
Fixed monthly futures contracts, where sellers charge more money to stop the settlement longer. Therefore, it is usually traded at a slight premium over normal spot markets. Technically known as “contango”, this situation is not exclusive to cryptoassets. In healthy markets, futures should trade at a premium of 4 to 8 percent per year, enough to offset the risks plus the cost of capital. However, if the demand for bearish bets gets too high, it causes a discount known as retrograde in the futures markets.
Considering the above data, the Bitcoin futures premium has turned negative. On the other hand, it is clear that derivatives traders showed a bearish trend on November 9. However, the $15,500 drop on November 21 was not enough to generate additional demand for leveraged short positions, according to futures markets.
Options markets confirm Bitcoin drop
According to expert Marcel Pechman, traders should analyze the options markets to see if Bitcoin will retest the $15,500 support. 25 percent delta skewness, upside or downside protection demanded from arbitrage tables and market makers; It is a defining sign. The indicator compares similar call and put options. If the premium for protective put options is higher than for risky call options, it turns positive when fear prevails. In summary, if traders fear a Bitcoin price drop, the skewness metric will rise above 10 percent. On the other hand, excitement reflects a 10 percent negative skew.
As shown above, the 25 percent delta shift has been above the 10 percent threshold since Nov. According to Pechman, this means options traders are pricing in higher risk of unexpected price drops. This rate, which is currently 18 percent, reveals that investors are scared. It also shows no interest in offering downside protection.
Will there be a surprise pump for Bitcoin?
According to Pechman, both Bitcoin futures and options markets are currently pricing in the possibility of a decline. Therefore, there is no reason to believe that a retest of $15,500 will result in massive liquidations. Also, the slight decline in the futures discount indicates that the bears are not confident in opening short positions at current price levels. According to the expert, although Bitcoin derivatives data remains bearish, a surprise like $18,000 after a bull run will likely cause more havoc. But for now, the bears are in control of BTC, according to futures and options data.
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