In the past two months, Bitcoin has consistently underperformed most altcoins, but this trend has been reversed this week (Bitcoin) A 20% rebound pushed its market value to break the $1 trillion mark on October 6. This shifts the attention of investors to the leading cryptocurrencies, and altcoins are currently at a loss.
If Bitcoin traders become overconfident and abuse leverage to open long positions, then the current positive momentum may be dangerous. To avoid this situation, traders need to carefully analyze the derivatives market to eliminate this risk.
Please note that the market value of the altcoin above has increased by 5.8%, while Bitcoin has increased by 20.8% over the same period. Sure enough, there are some outliers, such as Shiba Inu (SHIB) up 200%, Fantom (FTM) up 60%, and Klaytn (KLAY) up 36%. However, the total market value of altcoins did not accompany Bitcoin’s performance.
Some famous people, such as billionaire Wall Street investors Bill Miller They have recently expressed their optimism about Bitcoin, while also expressing concern about most altcoin projects. Miller explicitly mentioned the involvement of “big banks” and mentioned that “a large amount” of venture capital funds flowed into Bitcoin.
The recent Bitcoin frenzy seems to be driven by the macroeconomic situation.America Raise its debt limit 480 billion U.S. dollars to repay its debts before the beginning of December. Inflationary pressures brought about by endless stimulus plans and meager interest rates have been driving the long-term rise of commodities.
For example, oil reached its highest level in seven years, and wheat futures recently hit a record high since February 2013. Even the Standard & Poor’s Case-Shiller house price index has seen an annualized increase of 23.3%.
To understand whether Bitcoin traders are too excited, traders should analyze Bitcoin’s derivatives indicators, such as futures market premiums and option skew.
Futures premium indicates that traders are slightly bullish
The benchmark interest rate measures the difference between the long-term futures contract and the current spot market level. This indicator is also often referred to as the futures premium.
In a healthy market, the annualized premium is expected to be 5% to 15%. This situation is called a futures premium. This price difference is caused by sellers asking for more money to extend the detention time.
The recent 20% increase in Bitcoin prices has caused this indicator to reach the upper limit of this neutral zone, which means that investors are bullish but not yet overconfident. Whenever buyers demand excessive leverage, the benchmark interest rate can easily exceed 25%, as seen in mid-May.
In order to eliminate the unique externalities of futures instruments, the option market should also be analyzed.
Bitcoin options indicate “neutral” sentiment
The 25% delta skew compares similar call (buy) and put (sell) options. Whenever “fear” prevails, the indicator becomes positive because traders anticipate potential downside.
When option traders are bullish, the situation is just the opposite, causing the 25% delta skew indicator to shift to the negative zone. Readings between minus 8% and plus 8% are generally considered neutral.
The graph above shows that in the past six months, option traders have not experienced overconfidence, which indicates “greed” because the 25% delta skew drops below the negative 8%. At the same time, the indicator has been hovering in the range close to 0 in the past week, showing the risk balance between short and long positions.
These survey results must show that buyers lack confidence, but the facts are quite the opposite. If the Bitcoin bulls are already too confident about $57,000, there is little room for additional leverage. If a temporary price adjustment occurs, it will increase the risk of cascading liquidation.
The bulls have moderate confidence, and even a 20% price adjustment is unlikely to change this situation because the basis of the futures market shows a reasonable premium after the recent rebound.
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