Bitcoin price is correcting, but what does futures data show?

BTC price rejected near $58,000 but derivatives data shows traders positioned in a neutral-to-bullish, leaving sufficient “room” for a new all-time high in 2021.

Bitcoin had been underperforming most altcoins for the past two months, but that trend reversed this week when (BTC’s) 20% rally pushed its market capitalization to break the $1 trillion mark on Oct. 6. That shifted investors’ attention back to the leading cryptocurrency, and altcoins are currently in the red for the day.

The current positive momentum could be dangerous if Bitcoin traders become overconfident and abuse leverage to open long positions. To avoid this, traders need to carefully analyze derivatives markets to exclude this risk.You can see live stats here

Bitcoin 3-month futures annualized basis. Source:

A 5% to 15% annualized premium is expected in healthy markets, which is a situation known as contango. This price difference is caused by sellers demanding more money to withhold settlement longer.

The recent 20% Bitcoin price rally caused the indicator to reach the upper limit of this neutral zone, meaning investors are bullish but not yet overconfident. Whenever buyers demand excessive leverage, the basis rate can easily surpass 25%, as seen in mid-May.

To exclude externalities specific to the futures instrument, one should also analyze options markets.

Bitcoin options signal “neutral” sentiment

The 25% delta skew compares similar call (buy) and put (sell) options. This metric will turn positive whenever “fear” is prevalent because traders expect potential downside.

The opposite holds when option traders are bullish, causing the 25% delta skew indicator to shift to the negative area. Readings between negative 8% and positive 8% are usually deemed neutral.

Deribit BTC options 25% delta skew. Source: Laevitas

The above chart shows that there hasn’t been a single instance of options traders becoming overconfident in the past six months, which would signal “greed” because the 25% delta skew dropped below negative 8%. Meanwhile, the indicator has ranged near 0 for the past week, showing balanced risks between the bears and bulls.

Those findings necessarily show a lack of confidence from buyers, but it is quite the opposite. Had Bitcoin bulls already been overly confident at $57,000, there would be little room for additional leverage, increasing the risk of a cascading liquidation if a momentary price correction occurred.

Bulls are modestly confident and even a 20% price correction is unlikely to change the situation because the futures market’s basis rate shows a reasonable premium after the recent rally.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.


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