Author: Marcel Pechman, CoinTelegraph; Translated by: Deng Tong, Golden Finance
On October 21, the price of Bitcoin fell to $67,000, erasing gains from the previous three days. Some analysts indicated that one reason for the pullback is that investors reduced their exposure to Bitcoin due to concerns over traditional market impacts. However, the indicators for Bitcoin derivatives remain very stable.
Despite concerns that many economies may lose momentum or that confidence in government debt refinancing is waning, the demand for Bitcoin derivatives as a hedging tool remains steady. If whales or arbitrageurs expect further declines, these indicators will reflect greater volatility.
Bitcoin futures show no signs of bearish bets.
In a neutral market, Bitcoin futures premiums typically range between 5% and 10%, with only minor impacts observed on October 21. The rise in monthly BTC futures prices reflects an extension of the settlement cycle, with premiums exceeding 10% indicating bullish sentiment.
Bitcoin 2-month futures annualized premium. Source: laevitas.ch
The annualized premium (base rate) in October remains above 9%. On the 21st, Bitcoin retested the support level of $67,000. However, it is important to confirm whether this sentiment is limited to the Bitcoin futures market before drawing conclusions. Based solely on price charts, Bitcoin's price movement seems to reflect the intraday performance of the stock market.
S&P 500 futures (green) compared to S&P 500 futures (green) Bitcoin/USD (blue). Source: TradingView
T. Rowe Price Fixed Income Chief Arif Husain told Bloomberg that, driven by rising inflation expectations and concerns about government fiscal spending, the yield on the US 10-year Treasury will 'test the 5% threshold in the next six months.' As investors sell bonds, yields rise, indicating that traders are seeking higher returns.
Husain pointed out that the government will 'massively issue new debt' to the market, while the Federal Reserve is trying to shrink its balance sheet to curb inflation and prevent the economy from overheating. The annual interest cost of US debt has exceeded $1 trillion, prompting the central bank to consider lowering interest rates.
The price of Bitcoin has yet to decouple from stocks.
In the context of macroeconomic uncertainty, fear, uncertainty, and doubt (FUD) have greatly influenced Bitcoin's price trend.
Although Bitcoin is generally considered uncorrelated with traditional markets (having periods of complete detachment from the S&P 500), the correlation over the past month has remained above 80%, indicating a close relationship between the trends of these two asset classes.
Bitcoin 40-day correlation with S&P 500 futures. Source: TradingView
Unlike the negative or negligible correlation between Bitcoin and the S&P 500 from mid-July to mid-September, recent data suggests that both markets are driven by similar factors. The correlation between Bitcoin and gold has been increasing, exceeding 80% on October 3, further supporting this hypothesis.
The Bitcoin options market also reinforces the argument for the resilience of derivatives. The 25% Delta skew indicator suggests that the trading price of put (sell) options is discounted compared to equivalent call (buy) options.
Bitcoin 1-month option skew, put options. Source: Laevitas.ch
Generally, deviations between -7% and +7% are considered neutral, and the current indicators are at the boundary of neutral to bullish markets.
In short, derivatives traders have not reacted with panic to Bitcoin's recent price drop. If traders expect further price declines, the deviation will shift towards zero or higher. Overall, Bitcoin derivatives continue to show resilience.
