Pro traders bullish sentiment softened after Bitcoin futures open
interest fell in tandem with traditional markets which also recorded
notable losses.
Bitcoin (BTC)
futures open interest just had its most extensive daily reduction in
five months. Yesterday's 11% drop move caused more liquidations than May
9 when BTC plunged 12.5% to $8,600.
BTC futures open interest in USD terms. Source: Skew
Skew
data shows total open interest down by $653 million, reaching $4
billion on Sept. 3. That figure includes perpetual (inverse swaps) and
futures with set expiry on OKEx, CME, Binance, and remaining derivatives
exchanges.
Yesterday’s move was the largest daily drop since the horrendous $1 billion cascading liquidation on March 13 caused a 50% drop in Bitcoin price. That same day marked the worst sell-off of the Dow Jones Industrial Average since 1987, a 10% drop.
The
drastic correction might not have been such a record negative for stock
markets, but the Nasdaq Composite tumbled 5%, led by Apple (AAPL -8%),
Salesforce (CRM -7.8%), and Microsoft (MSF -6.2%).
Apple (AAPL)
shares slid 8% on Sept. 3, causing its market capitalization to recede
by $180 billion. This was the most extensive daily loss for a single
company. By comparison, currently Bitcoin’s market capitalization stands
at $194 billion.
The iPhone maker is currently valued at slightly
over $2 trillion. Such an impressive figure could acquire the entire
altcoin market, paying a 1.300% premium to the current $140 billion
altcoin market capitalization.
The futures premium temporarily vanished
Futures
markets tend to trade at a slight premium to regular spot exchanges.
This is not something exclusive of cryptocurrencies markets, but rather a
derivatives effect. By postponing the financial settlement for a trade,
sellers usually demand more money.
This futures contracts premium
indicator is known as basis and it usually ranges between a 5% to 15%
annualized rate. Whenever the premium is positive, the market is
characterized as in contango. On the other hand, a zero to negative
future contracts premium is unusual and indicates bearish sentiment.
BTC 3-month futures annualized basis. Source: Skew
The
above chart shows how significant yesterday's brief sub-$10K drop was
on futures markets. Such a negative premium situation, known as
backwardation, was last seen four months ago on May 10. Back then,
Bitcoin (BTC) quickly recovered over the following three days, causing the basis indicator to regain positive territory.
The current 4% annualized basis can't be deemed bearish, although undeniably not bullish as the 10% level from three days ago.
Short-term options are back to bearish levels
Bitcoin
option markets are also susceptible to significant price changes.
Similar to the futures market, the recent BTC dip caused major risk
aversion movements. Market makers often increase spreads during periods
of volatility, thus, what happens on the following day is most telling.
The
25% delta skew indicator compares similar call (buy) and put (sell)
options side-by-side. The indicator will turn negative when put options
premium is higher than similar-risk call options. Such negative skew
translates to a higher cost of downside protection, indicating
bullishness.
The opposite holds when market makers are bearish, causing the 25% delta skew indicator to gain positive ground.
BTC options 25% delta skew. Source: Skew
Although
numbers are different depending on how far those options expiry is,
short-term ones usually display a more considerable impact. Yesterday's
sharp Bitcoin (BTC)
drop caused the 1-month 25% delta skew to rise above 10%. As the above
chart shows, ranges from -10% (slightly bullish) to +10% (somewhat
bearish) are usual.
It seems premature to conclude that options
markets are displaying bearish sentiment, especially when analyzing
longer-term options. Nevertheless, large traders and market makers seem
to be risk-averse right now, at least for pricing downside protection
options.
Bitcoin derivatives remain healthy
Despite
the Bitcoin futures open interest drop, it's aggregate notional value
of $4 billion remains higher than two or three months ago. The same can
be said by the current futures 4% premium (basis), which is far from
bearish backwardation levels.
One should keep in mind that
cryptocurrencies markets are incredibly volatile, and negative stock
market swings also impact investors. No further evidence is needed after
the two most largest BTC futures liquidation events happening on the
exact same day of historical stock market crashes.
Those events
prove that even uncorrelated markets may eventually reach peaks and
valleys at similar times regardless of their different drivers. The
current global macroeconomic scenario seems to be the most dominant
force driving risk assets, including Bitcoin.
source link : https://cointelegraph.com/news/sub-10k-bitcoin-price-caused-653m-open-interest-drop-largest-since-march
