The Bitcoin (BTC) price plunged 5.5% between July 31 and August 1, reaching a two-week low of $62,498. The move was driven by reduced expectations of a rate cut in the United States and the distribution of 47,000 BTC from the assets of the closed exchange Mt. Gox. Traders are concerned that the Bitcoin price could correct further to retest the $57,000 support level, but the derivatives market is showing resilience and shows no signs of stress.
Investors pulled out of risky markets as they sought protection.
On July 31, the Federal Open Market Committee announced that it had decided to keep the interest rate at 5.25%, in line with market expectations. Federal Reserve Chairman Jerome Powell said that there was a possibility of a rate cut in September, citing clear signs of GDP expansion and confidence in the current rate of inflation decline. In short, Powell’s statement suggests a more cautious approach to rate cuts.
Investors have increased their bets on U.S. Treasuries, sending the 5-year yield to its lowest level in six months. Some of the move can be explained by traders seeking protection in assets considered safest as tensions in the Middle East rise. Additional evidence supporting this theory comes from the precious metal gold, which has risen to $2,450, just 1.5% below its all-time high.
Investors are concerned that the U.S. economy is headed toward a recession, especially as unemployment claims hit an 11-month high and construction spending fell for the second straight month, according to Yahoo Finance. Meanwhile, investors are waiting for quarterly earnings from tech giants including Apple and Amazon, which will be released on August 1, a gauge of whether the artificial intelligence hype can deliver on its promises in terms of profits.
As a result, the timing of the transfer of approximately $3 billion worth of Bitcoin from Mt. Gox on July 30 raised concerns about a potential selloff, as investors had been waiting for more than a decade for their payout. The Bitcoin was transferred to cryptocurrency exchanges Kraken and Bitstamp as part of the ongoing distribution of recovered funds. In essence, the move sparked fear among investors as market participants looked for an explanation for the recent 5.5% drop in Bitcoin price.
Bitcoin futures and options show no signs of stress
To understand the impact of a retest of the $62,000 support level, we need to analyze Bitcoin derivatives indicators. For example, BTC monthly futures contract prices typically display a 5% to 10% premium over regular spot exchanges to accommodate longer settlement periods.
On August 1, the Bitcoin futures premium fell to a three-week low of 7%, but is still within the neutral range. This is a modest change from July 30, when the indicator was just above the 10% threshold. So while it would be inaccurate to say that investors have turned bearish based on the futures premium, they have certainly become less bullish.
Related: Why did Bitcoin price drop today?
To see if this sentiment only exists in the futures market, we need to analyze the 25% delta skew of Bitcoin options, which measures the relative demand for call (buy) and put (sell) options. Negative skew indicates greater demand for call options, while neutral markets typically have a delta skew of -7% to +7%, indicating balanced prices between the two instruments.
Bitcoin’s 25% delta skew is currently at -5%, meaning that put options are trading at a slight discount, which is typical in a neutral market. More importantly, this indicator has remained relatively flat since July 31, indicating that sentiment is not a major factor according to BTC derivatives indicators. Despite the recent 5.5% intraday decline, it is safe to conclude that professional traders do not expect further price corrections in the short term.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.