A sudden $860 price correction on September 6 took the price of Bitcoin (BTC) from $19,820 to $18,960 in less than two hours. The move caused $74 million in bitcoin futures to monetize on derivatives exchanges, the largest in nearly three weeks. The current level of $18,733 is the lowest since July 13 and represents a 24% retracement of the rally to $25,000 on August 15.
Bitcoin/usd price 30 min. Source: TradingView
It is worth noting that a 2% injection towards $20,200 occurred in the early hours of September 6, but the move quickly subsided and Bitcoin resumed trading near $19,800 within an hour. Ether (ETH) price action was more interesting, rising 7% in the 48 hours leading up to the market correction.
Any conspiracy theories about investors changing their stance in favor of the altcoin can be dismissed as Ether fell 5.6% on September 6, while Bitcoin’s loss of $860 represented a change of 3.8%.
The market has been somewhat in a standstill since August 27, and US Federal Reserve Chairman Jerome Powell’s comments were followed by a $1.25 trillion loss in US stocks in a single day. At the annual Jackson Hole Economic Symposium, Powell said large interest rate increases were still on the table, causing the S&P 500 to close 3.4% down on the day.
Let’s take a look at crypto derivatives data to understand if investors are seeking higher odds of a pullback.
Professional traders have been in a downtrend since last week
Retail traders usually avoid quarterly futures contracts because their prices differ from the spot markets. However, they are preferred tools for professional traders because they prevent the fluctuation of funding rates that often occur in perpetual futures contracts.
The annual premium on Bitcoin futures for 3 months. Source: Laevitas
In healthy markets, the index should trade at an annual premium of 4% to 8% to cover the costs and associated risks. So one can safely say that derivatives traders have been neutral to the downside over the past month because the premium for Bitcoin futures has remained below 3% throughout. This data reflects the unwillingness of professional traders to add long positions (bull) with leverage.
One should also analyze the Bitcoin options markets to rule out the externalities of the futures instrument. For example, a delta skew of 25% is a milestone when market makers and arbitrage desks raise their fees to protect against an upside or downside trend.
Bitcoin 30-day options 25% delta skew: Source: Laevitas
In bear markets, options investors give higher odds of a price plunge, causing the Skew Index to rise above 12%. On the other hand, bullish markets tend to push the skew indicator below negative 12%, which means bearish sell options are discounted.
The 30-day delta skew has been above the 12% threshold since September 1, indicating that options traders have been less inclined to offer downside protection. These two derivative metrics suggest that the bitcoin price plunge on September 6 may have been partially expected, which explains the low impact on liquidations.
In comparison, the $2,500 drop in bitcoin on August 18th triggered a $210 million long leveraged liquidation (buyers). However, the prevailing downtrend does not necessarily translate into an opposite price movement. Therefore, one should tread carefully when whales and market signs are less inclined to add long leverage and provide downside protection with options.
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 movement involves risks. You should do your research when making a decision.
