Bitcoin’s price surpassed $28,000 on March 21 but traders are not very positive about the cryptocurrency’s future, according to two derivative metrics. Investors are not completely confident about further price moves as the recent rescue of Credit Suisse has shown that the current global banking crisis may not be over. Swiss authorities announced on March 19 that UBS had agreed to acquire rival Credit Suisse in an “emergency rescue” merger to avoid further market-shaking turmoil in the global banking sector. The transaction could benefit from more than $280 billion in state and central bank support, which is equivalent to one-third of Switzerland’s gross domestic product. However, there is no way to portray this agreement as reassuring or as a sign of strength from financial institutions, including central banks.
The emergency credit lifeline provided by the United States Treasury to protect the banking sector and increase Federal Deposit Insurance Corporation reserves also shows that the banking crisis is not over. The “Bank Term Funding Program” (BTFP), launched on March 12, marked a return to Fed liquidity injections, reversing the trend initiated in June 2022, when the Federal Reserve began monthly asset sales. By lending $300 billion in emergency funds to banks, the Fed completely reversed its strategy to curb inflation, which has been above 5% year-over-year since June 2021, whereas the target is 2%. This strategy, known as tightening, included increasing interest rates and reducing the $4.8 trillion in assets the Federal Reserve accumulated from March 2020 to April 2022.
Investors in cryptocurrencies, therefore, are not optimistic about further price moves at the moment, especially if coming from corporations, mutual fund managers or wealthy investors. Historically, investors tend to hoard cash positions or short-term government debt instruments during recessionary periods in order to sustain day-to-day operations and possibly be used to purchase bargains. As investors prepare for the impact of inflation or a recession, or both, the yield on six-month U.S. Treasurys decreased from 5.33% on March 9 to 4.80% on March 20. This development indicates a greater demand for short-term instruments.
Looking beyond Bitcoin’s stellar performance, professional Bitcoin traders are not so bullish above $26,000. This is not necessarily a bad thing, but unless crypto investors regain confidence, the chances of the cryptocurrency surpassing $30,000 remain extremely remote. A complete breakdown of the banking system would cause investors to flee to safety rather than seek out risk.
Bitcoin futures contracts in healthy markets should trade at a 5%-10% annualized premium, known as “contango”. Since March 15, the BTC futures premium indicator has remained unchanged at 2.2%, indicating no additional demand from leveraged buying activity. The absence of demand for leverage longs does not necessarily imply a price decline. As a result, traders should investigate Bitcoin’s options markets to learn how whales and market makers value the likelihood of future price movements.
The 25% delta skew is another telling sign showing when market makers and arbitrage desks are overcharging for upside or downside protection. In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 8%. On the other hand, bullish markets tend to drive the skew metric below -8%, meaning the bearish put options are in less demand. The delta skew crossed the neutral -8% threshold on March 19, indicating moderate optimism as neutral-to-bullish call options were in higher demand. However, the 25% skew indicator is currently at -8%, which is the edge of a balanced situation. Nonetheless, it is the polar opposite of the previous week, when the skew reached 12% on March 13.
Bitcoin quarterly futures are popular among whales and arbitrage desks, which typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement for a longer period. Ultimately, professional Bitcoin traders are not bullish above $26,000. Unless crypto investors regain confidence, the chances of the cryptocurrency surpassing $30,000 remain extremely remote.
