Bitcoin (BTC) saw a 4.9% dip in the four days after it failed to break the $28,000 resistance on Oct. 8, with derivatives metrics showing fear is dominating market sentiment — but will it be enough to push Bitcoin price out of its current range?
Looking at the bigger picture, Bitcoin is holding up well, especially when compared to gold, which has dropped 5% since June, and Treasury Inflation-Protected (TIP) bonds, which have seen a 4.2% decrease over the same period. By simply staying at $27,700, Bitcoin has outperformed two of the most secure assets in traditional finance.
Given the rejection of Bitcoin’s price at $28,000 on Oct. 8, investors should analyze BTC derivatives metrics to determine if bears are in control.
Treasury Inflation-Protected Securities are U.S. government bonds created to protect against inflation. Therefore, the value of TIP exchange-traded funds (ETFs) is likely to increase with rising inflation since the bond principal and interest payments adjust to inflation, thus preserving the purchasing power for investors.
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$27,600 Bitcoin is not necessarily a bad thing
Despite the fact that Bitcoin has achieved a historic milestone of surpassing the market caps of global payment processor Visa ($493 billion) and Exxon Mobil ($428 billion) with its current $520 billion market capitalization, some Bitcoin enthusiasts may not be entirely satisfied. This bullish expectation is partly based on Bitcoin’s previous all-time high market cap of $1.3 trillion in November 2021.
The U.S. Dollar Index, which measures the dollar against a basket of foreign currencies — including the euro, Swiss franc and British pound — is nearing its highest level in 10 months. This indicates a strong vote of confidence in the resilience of the U.S. economy, at least in relative terms, and thus explains why investors are seeking cash positions instead of investing in alternative hedge instruments like Bitcoin.
The 3% gains in the S&P 500 index since June also suggest that some investors are not looking for risky investments. The top 25 companies hold a combined $4.2 trillion in cash and equivalents, in addition to being highly profitable, which is why stocks are also being used as a hedge.
Therefore, there is no reason for Bitcoin investors to be dissatisfied with its recent performance. However, this sentiment changes when we analyze BTC derivatives metrics to understand how to invest in Web 3.0, how to buy Web 3.0 domains, how to become a Web 3.0 developer, how Web 3.0 works, how to build a Web 3.0 website, how to invest in Web 3.0, and how Web 3.0 is different from Web 2.0.
Bitcoin derivatives show declining demand from bulls
The recent 3.2% futures premium (basis rate) is the lowest since mid-June, prior to BlackRock filing for a spot ETF. This suggests a decrease in demand for leverage buyers, although it isn’t necessarily an indication of bearish expectations. To better understand if the rejection at $28,000 on Oct. 8 has caused a reduction in investor optimism, traders should observe Bitcoin options markets. The 25% delta skew is a telling metric, especially when arbitrage desks and market makers charge more for protection against price drops or increases.
As seen, the Bitcoin options’ 25% delta skew shifted to a “fear” mode on Oct. 10, with protective put (sell) options trading at a 13% premium in comparison to similar call (buy) options. This implies that traders have become less confident, which could be due to the SEC’s postponements of the spot Bitcoin ETF decisions, and worries concerning exchanges’ ties to terrorist organizations.
At present, the negative sentiment towards cryptocurrencies appears to negate any benefits from macroeconomic volatility and the hedge protection provided by Bitcoin’s predictable monetary policy. From a derivatives perspective, the odds of Bitcoin’s price rising above $28,000 in the short term appear slim.
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