Bitcoin Weekend Rally, Crash Below $64,000 – Pro Trader Takes Neutral Stance

Bitcoin (BTC) rose 6.2% on August 23, its first price rally in three weeks, and has since held support at $63,000. Despite this positive price action, BTC derivatives traders appear relatively unmoved, indicating lingering skepticism about the sustainability of this trend.

Checking the correlation between Bitcoin and the stock market

Some market participants have cited ongoing macroeconomic factors as the main driving force behind cryptocurrency market trends, and investors are eagerly awaiting the U.S. Federal Reserve’s interest rate decision in September.

Given that the Russell 2000 Small Cap Index is currently trading 2% below its all-time high close in July 2024, it’s hard to argue that traders have become risk averse. At the same time, gold, a traditional safe haven asset that typically benefits in uncertain times, is just 0.6% below its all-time high.

Moreover, the yield on the U.S. 2-year Treasury note is nearing its lowest level since May 2023, which generally means buyers are becoming more aggressive and accepting lower yields in the process. In essence, the market is simultaneously seeking protection for assets that are perceived as safe while also maintaining expectations of positive corporate earnings in the second quarter.

This scenario tends to be unfavorable for Bitcoin, as most investors still perceive Bitcoin as a risky asset. However, it would be an oversimplification to say that Bitcoin and stocks are consistently highly correlated, as this relationship has changed over time and correlation periods rarely exceed five months.

As geopolitical tensions in the Middle East escalate, investors’ appetite for risk exposure has diminished. According to CNBC, Israel and Hezbollah exchanged missiles across the Lebanese border, and serious socio-political conflict in Libya has caused some disruption to oil production, increasing investor uncertainty.

Bitcoin Derivatives Are Down, But That Doesn’t Necessarily Mean a Bear Market

To better understand where Bitcoin traders are currently positioned, it is essential to analyze the BTC futures premium. In a neutral market environment, investors typically demand a premium of 5% to 10% per annum as compensation for the longer settlement period associated with monthly contracts. When this premium falls below that range, it is generally considered a bearish signal, while during periods of high excitement, the indicator can rise above 20%.

Despite the recent improvement in Bitcoin price, the BTC futures premium has remained stagnant at around 6%. While some may interpret the premium as a sign of healthy price recovery due to spot market activity, it suggests that professional traders are still cautious about opening leveraged long positions. Conversely, bullish traders may argue that if Bitcoin continues to strengthen, it indicates that there is still significant “dry powder” in the market, which could be viewed as a net gain.

It is also important to evaluate the BTC options market to see if this cautious sentiment is limited to Bitcoin futures. Typically, when market makers and whales expect a Bitcoin price decline, the options skew indicator exceeds 7%. Conversely, during bullish periods, the skew typically falls below -7%.

The current BTC options skew remains close to 0%, unchanged from last week, indicating a balanced price between call (buy) and put (sell) options. This suggests that Bitcoin options traders, much like the futures market, are not convinced that the bull market has resumed. In short, traders do not seem convinced that a rally above $67,000 is imminent.

Since Federal Reserve Chairman Jerome Powell’s speech on August 23, there has been growing confidence in traditional financial markets that the U.S. is likely to cut interest rates, but uncertainty still exists regarding corporate earnings.

Companies including tech giants Nvidia, Best Buy and Salesforce are scheduled to report earnings on August 28, while the U.S. personal consumption expenditures (PCE) inflation index, due on August 30, could have a significant impact on market sentiment in the coming weeks. As a result, investors would be wise to take a cautious, wait-and-see approach rather than making aggressive bullish bets at this point.