Bitcoin traders were ready for a hot CPI report, but BTC bears are still in control

Published at: Oct. 13, 2022

Cryptocurrency traders were caught by surprise after the Oct. 13 consumer price index report showed inflation in the United States rising by 0.6% in September versus the previous month. The slightly higher-than-expected number caused Bitcoin (BTC) to face a 4.4% price correction from $19,000 to $18,175 in less than three hours. 

The abrupt movement caused $55 million in Bitcoin futures liquidations at derivatives exchanges, the largest amount in three weeks. The $18,200 level was the lowest since Sept. 21 and marks an 8.3% weekly correction.

It is worth highlighting that the dip under $18,600 on Sept. 21 lasted less than 5 hours. Bears were likely disappointed as a 6.3% rally took place on Sept. 22, causing Bitcoin to test the $19,500 resistance. A similar trend is happening on Oct. 13 as BTC currently trades near $19,000.

The stock market also reacted negatively as the tech-heavy Nasdaq Composite index moved down 3% after the inflation data was released. After the initial panic selling, Nasdaq adjusted to a 2% daily loss as analysts reaffirmed their expectations toward a 0.75% interest rate increase by the U.S. Federal Reserve Committee in November.

Investors became even more bearish after BlackRock Inc (BLK) reported a 16% drop in profit versus the previous year. Meanwhile, financial heavyweights JPMorgan Chase (JPM) and Morgan Stanley (MS) are set to report on Friday.

Contrary to U.S. President Joe Biden's appeal, Saudi Arabia's ministry of foreign affairs put out a rare statement on Oct. 13 defending the Organization of the Petroleum Exporting Countries' production cut. The White House wanted to delay the decision until after the midterms. Nevertheless, the oil producer group decided to decrease the supply target by 2 million barrels per day beginning in November.

All of these developments are increasing investors’ bearish emotions and to get a better gauge on what is happening in the crypto sector traders should look at derivatives data to see if investors were taken by surprise after the 4.4% dip below $18,200.

Futures markets were bearish for the past month

Retail traders usually avoid quarterly futures due to their price difference from spot markets. They are, however, professional traders' preferred instruments because they prevent the fluctuation of funding rates that often occurs in a perpetual futures contract.

The indicator should trade at a 4% to 8% annualized premium in healthy markets to cover costs and associated risks. Derivatives traders had been neutral to bearish for the past month because the Bitcoin futures premium remained below 1% the entire time.

This data reflects professional traders' unwillingness to add leveraged long (bull) positions despite the low cost. However, one must also analyze the Bitcoin options markets to exclude externalities specific to the futures instrument.

Option traders are unwilling to offer downside protection

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection. For example, in bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 12%. On the other hand, bullish markets tend to drive the skew indicator below negative 12%, meaning the bearish put options are discounted.

The 30-day delta skew had been above the 12% threshold since Oct. 10, signaling that options traders were less inclined to offer downside protection. These two derivatives metrics suggest that the Bitcoin price dump on Oct. 13 might have been partially expected, which explains the relatively low impact on liquidations.

More importantly, the prevailing bearish sentiment remained after the CPI inflation was announced. Consequently, whales and markers are less inclined to add leverage longs or offer downside protection. Considering the weak macroeconomic conditions and global political tension, the odds currently favor the bears.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Tags
Bitcoin
Markets
Futures
Derivatives
Bitcoin Options
Inflation
Leverage
Related Posts
Hawkish Fed comments and Bitcoin derivatives data point to further BTC downside
A $750 pump on Aug. 26 took Bitcoin (BTC) from $21,120 to $21,870 in less than 2 hours. However, the movement was completely erased after comments from U.S. Federal Reserve Chair Jerome Powell reiterated the bank’s commitment to contain inflation by tightening the economy. Following Powell’s speech, BTC price dropped as low as $20,700. At Jackson Hole, Powell specifically mentioned that "the historical record cautions strongly against prematurely loosening policy." Right after those remarks, the U.S. stock market indexes reacted negatively, with the S&P 500 dropping 2.2% within the hour. On the Bitcoin chart, the affable “Bart candle,” a reference …
Bitcoin / Aug. 26, 2022
Bitcoin bulls aim to capture $45K leading into Friday’s $890M BTC options expiry
Bitcoin (BTC) bulls flipped the table on Friday's options expiry after a 14% rally on Feb. 28. Holding the price above $43,000 confirms a decoupling from traditional markets. For instance, the MSCI Emerging Markets equities index is down by 3.5% in 5 days, while the United States Russell 2000 small-capitalization index gained 0.9%. Investors are increasingly concerned about the ramifications of the U.S. Federal Reserve rate hikes expected throughout 2022. As a result, in the past 30 days some big names took a hit. For instance, Paypal PYPL traded down 38%, META corrected 34%, and Shopify SHOP lost 31.5%. The …
Bitcoin / March 3, 2022
Bitcoin bears have plenty of reasons to hold BTC price below $32,000
Since May 10, the Bitcoin (BTC) chart shows a relatively tight range of price movement and the cryptocurrency has failed to break the $32,000 resistance on multiple occasions. The choppy trading partially reflects the uncertainty of the stock market as the S&P 500 Index ranged from 3,900 to 4,180 in the same period. On one side, there has been economic growth in the Eurozone where the gross domestic product grew 5.1% year over year. On the other, inflation continues to soar, reaching 9% in the United Kingdom. Further adding to Bitcoin's volatility was the digital assets regulatory framework proposal introduced …
Bitcoin / June 8, 2022
3 major mistakes to avoid when trading crypto futures and options
Novice traders are usually drawn to futures and options markets due to the promise of high returns. These novice traders watch influencers post incredible gains and at the same time multiple advertisements from derivatives exchanges that offer 100x leverage are at times irresistible for most. Although traders can effectively increase gains by recurring derivatives contracts, a few mistakes can quickly turn the dream of outsized gains into nightmares and an empty account. Even experienced investors in traditional markets fall victim to specific issues in cryptocurrency markets. Cryptocurrency derivatives function similarly to traditional markets because buyers and sellers enter into contracts …
Bitcoin / Nov. 1, 2022
Total crypto market cap falls to $840 billion, but derivatives data shows traders are neutral
The total cryptocurrency market capitalization dropped 1.5% in the past seven days to rest at $840 billion. The slightly negative movement did not break the ascending channel initiated on Nov. 12, although the overall sentiment remains bearish and year-to-date losses amount to 64%. Bitcoin (BTC) price dropped 0.8% on the week, stabilizing near the $16,800 level at 10:00 UTC on Dec. 8 — even though it eventually broke above $17,200 later on the day. Discussions related to regulating crypto markets pressured markets and the FTX exchange collapse limited traders' appetites, causing lawmakers to turn their attention to the potential impact …
Bitcoin / Dec. 8, 2022