On March 14, Bitcoin (BTC) struggled to maintain its value above $85,000, even with a 1.9% increase in the S&P 500 index. More significantly, it has been over a week since Bitcoin reached the $90,000 mark, leaving traders to ponder whether the bullish trend has actually come to an end and how long selling pressure might endure.
Bitcoin Basis Rate Shows Signs of Recovery
From a derivatives standpoint, Bitcoin metrics have displayed strength despite a substantial 30% decline from its record high of $109,354 on January 20. The Bitcoin basis rate, measuring the premium of monthly contracts relative to spot markets, has rebounded to healthier levels after briefly indicating bearish sentiment on March 13.
Annualized premium of Bitcoin 2-month futures contracts.
Typically, traders expect an annualized premium of 5% to 10% to justify longer settlement times. A basis rate below this range suggests weak demand from leveraged buyers. Although the current 5% rate is lower than the 8% seen two weeks prior, it remains within a neutral range.
Expectations of Central Bank Actions Could Drive BTC Prices Up
Bitcoin’s price movements have mirrored the S&P 500 closely, indicating that the factors influencing investor risk aversion may not be solely linked to the leading cryptocurrency.
This connection, however, challenges the perception of Bitcoin as a non-correlated asset, as its price dynamics have been more closely associated with traditional markets, at least in the near term.
Comparison of S&P 500 futures with Bitcoin/USD.
If Bitcoin’s price continues to be heavily influenced by the stock market, which faces challenges from recession fears, investors may opt to reduce their exposure to riskier assets and turn to short-term bonds for safety. However, central banks are anticipated to initiate stimulus measures to mitigate recession risks, which suggests that scarce assets like Bitcoin could outperform.
According to market tools, analysts are currently assigning less than a 40% probability that U.S. interest rates will drop below 3.75% from the current baseline of 4.25% ahead of the July 30 FOMC meeting.
Nonetheless, Bitcoin might reclaim the $90,000 mark once the S&P 500 begins to recover some of its recent 10% losses. In a more optimistic scenario, panic selling could persist, leading to continued underperformance of Bitcoin, particularly if spot Bitcoin exchange-traded funds (ETFs) face ongoing significant outflows.
No Signs of Distress in Bitcoin Derivatives
Professional traders have not been actively utilizing Bitcoin options for hedging at this time, as indicated by the 25% delta skew. This suggests that few participants expect Bitcoin to revisit the $76,900 level in the immediate future.
25% delta skew for Bitcoin 1-month options (put-call).
In times of bullish sentiment, put (sell) options usually trade at a discount of 6% or greater. Conversely, bearish periods can push this indicator to a 6% premium, as briefly seen on March 10 and March 12. Recently, the 25% delta skew has remained within a neutral range, indicating a stable derivatives market.
To gauge trader sentiment accurately, it’s also essential to examine margin markets for Bitcoin. Unlike derivatives contracts, which maintain a balance between longs (buyers) and shorts (sellers), margin markets allow traders to borrow stablecoins to purchase spot Bitcoin, while shorter traders can borrow BTC to place short positions, betting on a price drop.
Long-to-short margin ratio for Bitcoin at OKX.
The Bitcoin long-to-short margin ratio at OKX shows that longs are dominating shorts by 18 times. Historically, excessive optimism drives this ratio above 40 times, while levels favoring longs below five times are considered bearish. The current ratio is reminiscent of the sentiment on January 30 when Bitcoin was trading above $100,000.
There are no indications of stress or bearishness in the Bitcoin derivatives and margin markets, which is a positive sign, especially after over $920 million in leveraged long futures contracts were liquidated in the week leading up to March 13.
Therefore, as recession risks diminish, Bitcoin is likely to regain the $90,000 level in the upcoming weeks, supported by resilient investor sentiment.
This article is meant for informational purposes only and should not be interpreted as legal or investment advice. The views expressed here are solely those of the author and do not necessarily represent the opinions of any specific entity.