On March 14, Bitcoin (BTC) struggled to maintain its position above $85,000, even with the S&P 500 index posting a 1.9% increase. Notably, it has been over a week since Bitcoin last reached $90,000, raising concerns among traders about the potential end of the bull market and the duration of ongoing selling pressure.
Recovery of Bitcoin Basis Rate from Bearish Trends
Analyzing from a derivatives standpoint, Bitcoin metrics exhibit resilience, despite a 30% decline from its all-time high of $109,354 recorded on January 20. The Bitcoin basis rate, which assesses the premium of monthly contracts over spot markets, has rebounded to more favorable levels after briefly indicating bearish sentiment on March 13.
Annualized premium of Bitcoin 2-month futures contracts. Source: Laevitas.ch
Typically, traders seek a 5% to 10% annualized premium to offset longer settlement periods. A basis rate falling below this range indicates low demand from leveraged purchasers. While the current 5% rate is below the 8% noted two weeks ago, it remains in neutral territory.
Potential Central Bank Influence on BTC Prices
The price behavior of Bitcoin has closely mirrored that of the S&P 500, suggesting that the factors influencing investor risk aversion may not be directly linked to the leading cryptocurrency.
This correlation poses challenges to the notion of Bitcoin as an asset that is not impacted by traditional market trends, at least in the short term.
Comparison of S&P 500 futures (left) and Bitcoin/USD. Source: TradingView / Cointelegraph
If Bitcoin’s valuation continues to be closely tied to the stock market, which is currently facing pressures from recession concerns, investors may further reduce their exposure to riskier assets, opting instead for safer short-term bonds.
Nonetheless, central banks are anticipated to introduce stimulus measures to avert an economic downturn, which could lead to outperformance for scarce assets like Bitcoin.
As indicated by the CME FedWatch tool, the market is pricing in less than a 40% chance that US interest rates will drop below 3.75% from the current 4.25% before the FOMC meeting on July 30.
However, Bitcoin is expected to reclaim the $90,000 mark once the S&P 500 recovers from its recent 10% slide. In a worst-case scenario, panic selling of risk assets might persist.
In such a scenario, BTC is likely to underperform in the coming months, particularly if spot Bitcoin exchange-traded funds (ETFs) continue to face significant and sustained net outflows.
No Indications of Stress in Bitcoin Derivatives
Currently, professional traders are not leveraging Bitcoin options for hedging, as evidenced by the 25% delta skew metric. This suggests that few market players anticipate a retest of the $76,900 price level in the near term.
25% delta skew for Bitcoin 1-month options (put-call). Source: Laevitas.ch
In bullish sentiments, put (sell) options trade at a discount of 6% or more, while bearish phases lead to the indicator increasing to a 6% premium, as briefly observed on March 10 and 12. However, the 25% delta skew has remained within neutral territory recently, highlighting a healthy derivatives market.
To gain a clearer picture of trader sentiment, it is crucial to assess BTC margin markets. Unlike derivatives contracts, which are always balanced between longs (buyers) and shorts (sellers), margin markets allow traders to borrow stablecoins to purchase spot Bitcoin. Likewise, bearish traders can also borrow BTC to initiate short positions, speculating on downward price movements.
Long-to-short margin ratio for Bitcoin at OKX. Source: OKX
The long-to-short margin ratio for Bitcoin at OKX indicates that longs outnumber shorts by 18 times. Historically, excessive confidence has driven this ratio above 40 times, while levels below five times favoring longs are regarded as bearish. The present ratio is reminiscent of the sentiment observed on January 30 when Bitcoin traded above $100,000.
No signs of stress or bearish sentiment are evident in Bitcoin derivatives and margin markets, which is comforting, particularly following the liquidation of over $920 million in leveraged long futures contracts in the week ending March 13.
Consequently, as recession fears diminish, Bitcoin’s price is likely to recover the $90,000 mark in the ensuing weeks due to strong investor sentiment.
This article is intended for general informational purposes and should not be construed as legal or investment advice. The opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.
