The BTC futures and options markets are not showing excessive leverage being used by buyers, a healthy indicator as support at $28,000 is retested.
Bitcoin price BTC
€26,282 it has successfully defended the $28,000 support on May 2, but has yet to show the strength to recapture the $29,200 level on April 30.
$30,000 Level Becomes Crucial for Bitcoin Bulls
Some analysts blame the recent bearishness on the expectation of an interest rate hike by the US Federal Reserve (Fed) on May 3, but in reality, the market is pricing 92% of the odds of a modest 25 basis point rise to its highest level since September 2007.
$DXY up/#Bitcoin down in yesterday’s PMI data release.
The market is now pricing a very high probability of a 25bp rise in tomorrow’s #FOMC.
This is likely to be priced mostly for BTC, but further comments (more rates/pause) will likely bring the volatility.
As noted by market intelligence platform Decentrader, Fed Chairman Jerome Powell’s comments are more likely to provide surprise elements, either pointing to further measures to slow the economy or pointing to higher odds that the interest rate will terminally is close to 5%. Powell will give a press conference at 14:30 ET.
From an employment standpoint, the central bank has reason to believe that the market continues to overheat. The US government reported 1.6 job offers for every unemployed worker in March. Additionally, according to the ADP national employment report released May 3, private payrolls increased by 296,000 jobs in April, well above the market consensus of 148,000.
However, the rise in interest rates has negative consequences especially for families and small businesses. Financing and mortgages are becoming more expensive, while investment in fixed income becomes more attractive. This unwanted effect of curbing inflation could further shake the core of the financial system, as the latest bankruptcy of First Republic Bank demonstrates .
Thus, an eventual Bitcoin price break above $30,000 could be a definite sign of investor perception shifting from a risky asset to a scarce digital asset that benefits directly from a weaker traditional banking system. .
But to gauge whether Bitcoin’s resistance above $28,000 is sustainable, one needs to look at whether buyers have used excessive leverage and whether professional traders are pricing in the higher odds of a market crash using BTC derivatives.
Bitcoin futures show low demand from leveraged buyers
Bitcoin quarterly futures are popular with whales and arbitrage platforms. However, these fixed-month contracts typically trade at a slight premium to the spot markets, indicating that sellers are asking for more money to delay settlement.
As a result, futures contracts in healthy markets should trade at an annualized premium of between 5% and 10%, a situation known as contango, which is not unique to cryptocurrency markets.
The data suggests that Bitcoin traders have been very cautious in the past two weeks. Even as the BTC price flirted with $30,000 on April 26, there were no signs of demand for leveraged longs.
Additionally, the Bitcoin futures premium has been stuck near 2% since April 23, suggesting that buyers are unwilling to use leverage, which is healthy for the market. By avoiding exposure to futures contracts, the risk of large sell-offs during negative Bitcoin price movements is greatly reduced.
Bitcoin Options Traders Remain Neutral
The Bitcoin options market can also help to understand if a recent correction has caused investors to become more bullish. The 25% slope of the options delta is a telltale sign when arbitrage desks and market makers overcharge for upside or downside protection.
In short, if traders anticipate a fall in the price of Bitcoin, the delta metric will rise above 7%, and excitement phases tend to read negative 7%.
The 25% skew of the options delta has shown balanced demand between put and call options over the last 4 weeks. This should come as a surprise given that the Bitcoin price rallied 10% between April 25-30, when it last tested the $30,000 resistance.
Consequently, the Bitcoin futures and options markets suggest that professional traders are not betting on the BTC price breaking above $30,000 in the near future . On the other hand, those traders are pricing similar probabilities of positive and negative surprise moves.
Ultimately, since the Fed clearly has a limit to raising interest rates without causing more recession, Bitcoin should have a positive impact, regardless of the May 3 decision.
Jerome Powell will have the last word that will force the US Treasury to pump more money into the economy to contain the banking crisis, which will be beneficial for a scarce asset like Bitcoin.
