After briefly reaching $63,800 on July 1, the Bitcoin (BTC) price took a significant downtrend, hitting a low of $56,746 on July 4. This three-day decline represents an 11% drop from its all-time high, and despite efforts to reclaim support at $58,000, the price is still 21.5% below its all-time high of $73,757 recorded on March 14.
Nonetheless, demand for Bitcoin derivatives and stablecoins in China suggests that traders are not ready to give up, suggesting the bull market is likely to continue into 2024.
S&P 500 and gold near all-time highs as bitcoin price plunges
The S&P 500 hit a new all-time high on July 3, while gold remained less than 4% below its May 19 high of $2,450. The stock market rally was driven by better-than-expected corporate earnings and growing expectations that the U.S. Federal Reserve will cut interest rates throughout 2024. This scenario highlights that the crypto market downturn is not related to widespread demand for riskier assets or alternative investments.
Moreover, the US 5-year Treasury yield has remained at 4.33% for the past four weeks, indicating no “flight to quality” movement by investors, who typically flock to safe-haven assets. This trend would typically lead to lower yields as demand for government-backed bonds increases and inflation concerns drive traders to seek higher yields. However, neither of these changes have materialized recently, leaving Bitcoin’s 19% four-week decline without any broader macroeconomic trend support.
Despite the massive selling pressure, Bitcoin whales and market makers have shown resilience, as evidenced by two key derivatives indicators.
Bitcoin Derivatives Index Remains Neutral Amid Rising Demand for Stablecoins in China
Professional traders often prefer monthly contracts because there is no funding rate. In neutral markets, these contracts typically trade at a premium of 5% to 10% to compensate for the long settlement period.
According to the data, the BTC futures premium fell to 7.5% on July 4th, but remained in neutral territory. It is worth noting that the last bullish 10% threshold was breached on July 2nd, but this lasted less than 4 days. The current futures premium is very similar to the period between June 21st and June 24th, after a 15% price correction over 12 days.
Traders should also consider the options market to gauge investor sentiment. A rise above 8% in the 25% delta skew indicator suggests a bearish outlook, while a negative 8% indicates increased optimism.
The current BTC options 25% delta skew is 0%, showing balanced pricing between call (buy) and put (sell) options. This shows a decrease in confidence compared to -5% last week, but is still within the neutral range. Essentially, there appears to be no urgent demand for hedging via Bitcoin options.
Related: $100 Million in Bitcoin Liquidated as BTC Falls. Will ETF Investors Panic Sell?
To understand whether the decline in interest in Bitcoin futures reflects broader market sentiment, it is useful to look at the demand for stablecoins in China. Stablecoins typically trade at a premium of 2% or more to the official US dollar rate due to high retail demand for cryptocurrencies. Conversely, a discount typically indicates a bear market.
The premium for China’s USDC stablecoin fell below 1% on June 28, indicating a rush to liquidate cryptocurrency holdings. However, the trend reversed on July 4, with the premium returning to a more neutral 1.8%. The rebound suggests a recent surge in buying activity as traders convert fiat currency CNY into stablecoins.
Considering that Bitcoin derivatives are not showing any downtrend, this data reinforces our belief that BTC price is likely to reclaim the $60,000 support level soon.
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.