Bitcoin (BTC) fell 3.3% on May 14 to retest the $61,000 support level, but was quickly defended. More importantly, this correction marked the second failed attempt to break $63,500 in a week. Despite sub-optimal price action, Bitcoin bulls remain confident, as evidenced by BTC derivatives indicators.
Although the current Bitcoin price trend appears bearish, some analysts still believe there is a good chance of a price resurgence above $70,000.
Trader and analyst Cryptotoad was impressed by how long the $60,500 support level held. However, he argues that a higher high (likely a daily close above $67,000) is needed to break the current bearish pattern. This analysis does not rule out a potential price recovery, but it clearly indicates a trend with prices below $57,000 in May.
US inflation data is putting near-term pressure on Bitcoin prices.
Investor disappointment on May 14 stemmed in part from April U.S. Producer Price Index (PPI) data, which showed a 0.5% increase from the previous month. The market interpreted massive inflationary pressures as confidence that the U.S. Federal Reserve would keep interest rates high for longer, which is detrimental to risky assets such as cryptocurrencies and growth stocks.
Some argue that inflation due to tight monetary policy is inherently positive for Bitcoin’s performance. However, during early stages of fear and uncertainty, investors tend to look for cash and short-term bonds. Yields on two-year U.S. Treasury bonds fell from 5.03% on May 1 to 4.84% on May 14, indicating that traders are paying higher prices for these bond instruments.
It may seem counterintuitive to seek protection from a recession from the U.S. Treasury, but these assets are considered the safest because they are backed directly by the government, unlike money market funds managed by financial institutions. So while higher-than-expected inflation data should have triggered negative sentiment towards Bitcoin, this was not reflected in the derivatives data.
Despite sluggish BTC price action, Bitcoin derivatives show resilience.
To analyze whether professional traders have become more pessimistic about Bitcoin after it fell to $61,000, we need to examine the BTC monthly futures contract. On neutral markets, these contracts typically trade at a 5% to 10% premium to the BTC spot market, taking into account their longer settlement periods.
Data shows that annual BTC futures premiums have not been significantly affected by the worsening macroeconomic situation and Bitcoin’s repeated failure to maintain prices above $63,500 over the past week. The current 8% premium puts it right in the middle of a neutral market, leaving significant margin for negative surprises.
Related: Bitcoin hash rate falls as miners shut down unprofitable ASICs after halving.
You should examine the Bitcoin options market to see if hedging demand has increased since the most recent price correction. Typically, when market makers and whales are expecting a decline in Bitcoin price, the BTC options skew metric exceeds 7%, while periods of frenzy often show skew below -7%.
BTC options 25% delta skew has remained in the neutral range since May 8. This means that market participants price the calls (buy) and puts (sell) instruments similarly. According to this indicator, the weakness in the price of Bitcoin has not affected how professional traders assess the risk of downside volatility.
Bitcoin bears got what they wanted three weeks ago, with the last daily close above $65,000 occurring on April 23rd. However, the bulls seem to be unaffected by the lack of momentum, which is mainly caused by temporary changes in investors. We aim for a cash position. Bitcoin’s path to $70,000 in 2024 remains on track, as market participants may need to look for alternatives if inflation issues in the U.S. persist.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.