Bitcoin price falls to 2-month low, but derivatives markets reflect traders’ interest


After a brief encounter with the $63,800 mark on July 1, Bitcoin (BTC) price underwent a significant downturn, reaching a low of $56,746 on July 4. This three-day dip represented an 11% decrease from its peak, and despite efforts to regain the $58,000 support, Bitcoin’s price is still 21.5% below its all-time high of $73,757, recorded on March 14.

Still, the demand for Bitcoin derivatives and stablecoins in China suggests that traders are not ready to give up, pointing to the potential continuation of the 2024 bull market.

Bitcoin price plunged while the S&P 500 and gold close in on all-time highs

The S&P 500 index achieved a new all-time high on July 3, and gold remained just under 4% shy of its record $2,450 high on May 19. The surge in the stock market has been driven by corporate earnings surpassing expectations and the growing anticipation of interest rate cuts by the United States Federal Reserve throughout 2024. This scenario underscores that the downturn in the cryptocurrency market is unrelated to the broader demand for risk-on assets or alternative investments.

Moreover, the United States 5-year Treasury yield has stayed at 4.33% for the past four weeks, indicating no movement toward “flight-to-quality,” where investors typically flock to safer assets. This trend would typically lead to a decrease in yields, as demand for government-backed bonds rises and inflation fears push traders to seek higher returns. However, none of these shifts have materialized recently, leaving Bitcoin’s 19% four-week slide without backing from broader macroeconomic trends.

Despite intense selling pressure, Bitcoin whales and market makers have shown resilience, as evidenced by two key derivatives metrics.

Bitcoin derivatives metrics stay neutral as stablecoin demand in China increased

Professional traders often favor monthly contracts because they do not involve a funding rate. In a neutral market, these contracts usually trade at a premium of 5% to 10% to compensate for their extended settlement periods.

Bitcoin 2-month futures premium relative to spot markets. Source: Laevitas.ch

The data indicates that the BTC futures premium fell to 7.5% on July 4 but remained within the neutral territory. Notably, it last exceeded the 10% bullish threshold on July 2, but this only lasted for less than four days. The current futures premium closely resembles the period between June 21 and June 24, following a 12-day price correction of 15%.

Traders should also consider the options markets to assess investor sentiment. A rise above 8% in the 25% delta skew metric suggests a bearish outlook, while a negative 8% indicates heightened optimism.

Bitcoin 2-month options delta skew. Source: Laevitas.ch

Currently, the BTC options 25% delta skew is at 0%, showing balanced pricing between call (buy) and put (sell) options. Although this represents a decrease in confidence compared to the previous week’s -5%, it still falls within the neutral range. Essentially, there appears to be no urgent demand for hedging through Bitcoin options.

Related: $100M Bitcoin liquidated as BTC drops: Will ETF investors panic sell?

To understand if the diminished interest in Bitcoin futures mirrors broader market sentiment, it’s useful to look at the demand for stablecoins in China. Normally, high retail demand for cryptocurrencies causes stablecoins to trade at a premium of 2% or more above the official U.S. dollar rate. Conversely, a discount usually signals bear markets.

USC Coin (USDC) peer-to-peer trades vs. USD/CNY. Source: OKX

The premium for China’s USDC stablecoin dropped below 1% on June 28, suggesting a rush to liquidate cryptocurrency holdings. However, this trend reversed on July 4, with the premium returning to a more neutral 1.8%. This rebound suggests a recent surge in buying activity as traders convert fiat CNY into stablecoins.

Considering that Bitcoin derivatives are not exhibiting bearish signs, such data bolsters confidence that the BTC price is likely to regain the $60,000 support level soon.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.



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