Bitcoin (BTC) experienced a significant volatility spike on August 12, initially dropping 3.2% to $57,844 in less than an hour, but then rebounding 5% to $60,700 in the next 30 minutes. This price action reflects uncertainty surrounding the macroeconomic situation, particularly following comments from the U.S. Federal Reserve (Fed) governor over the weekend. These comments sent gold prices soaring to $2,458, just 1% below its all-time high.
A recession is the biggest risk to the Bitcoin price crash.
Now, traders are questioning whether Bitcoin can retest its low since August 5 at $49,248, as interest in leveraged BTC longs wanes and the risk of a global equity market correction grows.
JPMorgan economists have raised their estimate for a U.S. recession in 2024 to 35% from a previous estimate of 25%. The report cited weak labor market conditions and restrictive Fed policies as key factors, according to Bloomberg.
On August 10, Federal Reserve Chair Michelle Bowman said inflation risks persist and the labor market remains weak, making a September rate cut less likely, Yahoo Finance reported. Investors are currently on hold, waiting for the U.S. producer price index on August 13 and the consumer price index on August 14. These data points are expected to provide clues as to whether the Fed will meet market expectations of at least two rate cuts by the end of 2024.
To assess the impact of recent Bitcoin price volatility, it is important to analyze the Bitcoin futures market. BTC monthly futures have an inherent cost due to the long settlement period, and sellers typically demand a premium of 5% to 10% per annum to offset this factor.
The annualized Bitcoin futures premium (the reference rate) fell to 6% on August 12, down from 9% on August 11, as support at $58,000 was retested. While the current level is within the neutral range, it is a sign of lack of leverage demand from bulls, a trend that has persisted since the premium last crossed 10% on July 30.
Bitcoin investors are becoming more sophisticated and less price sensitive.
To determine if this sentiment shift is limited to the Bitcoin futures market, it is essential to examine the demand in the BTC options market. A delta skew indicator above 7% typically indicates expectations of a price decline, while a negative 7% skew typically reflects bullish sentiment.
The Bitcoin Options Skew Indicator has remained relatively stable over the past week, indicating that there is no significant imbalance in the prices of put (sell) and call (buy) options. This data shows that sentiment has decreased since late July, when the indicator suggested moderate bullishness. However, it is important to note that there are no signs of stress, despite the price dropping below $50,000 on August 5.
relevant: World’s Largest Bitcoin Miner Raises $250 Million to Buy More Bitcoin
One possible explanation for the current neutral sentiment is the reduction in excessive leverage in the market. Last week’s volatility likely reduced the demand for leverage, with both bulls and bears liquidating $634 million in BTC futures. However, this alone does not fully explain why Bitcoin futures open interest is currently at $28.8 billion.
The most likely explanation for the indifference of Bitcoin derivatives indicators is the popularity of ‘cash and carry’ strategies, where traders engage in fixed-income trades to capture futures premiums. In this scenario, market direction does not matter because one side offsets the other. If the trader had used more than 5x leverage, he would have faced liquidation during the 23% price decline between August 2 and August 5.
According to the data, Bitcoin derivatives are less reliant on retail trading, with CME emerging as the leader with 29% market share. Essentially, there is no clear indication that traders are turning bearish or that excessive liquidations could lead to a chain sell-off up to $52,000, even if Bitcoin price volatility persists.
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.