The inverted Bitcoin futures contract shows that professional investors lack confidence

Bitcoin (Bitcoin) The $40,000 support level may have been tested in mid-July, but according to various derivatives indicators, investor optimism has not changed significantly.

This situation either means that the price is not what they expected to mark the end of the current bear market, or that most traders are still under $40,000.

One of the best measures of optimism is the futures market premium, which measures the gap between long-term contracts and current spot market levels. In a healthy market, the annualized premium is expected to be 5% to 15%. However, during the bearish market, the indicator gradually weakened or turned negative. This situation is called an inverse spread and is a worrying red flag.

Huobi 1-month Bitcoin futures basis.Source: Skew

According to the above chart, since June 18, the annualized premium of one-month futures contracts has been unable to maintain above 5%. There have even been some spot premiums, including the most recent one on July 5.

Of course, the derivatives market may be decoupled from the conventional spot market. Perhaps investors are reluctant to take exchange risks because futures contracts require margin deposits.

Will the spot and derivatives markets diverge?

To understand whether the bearish signals seen in derivatives are clearly related to these instruments, we should analyze the spot market trading volume. Usually, within a few weeks after the price crash, trading activity in the bearish market will decrease.

Bitcoin market capitalization (above) and total transaction volume, in billions of dollars. Source: TradingView

As predicted, the transaction volume peaked in late May, but fell by more than half a few weeks later. Although this cannot be considered a bearish indicator by itself, it expresses a lack of interest in trading at current levels.

This change may occur when buyers are afraid and therefore lower their prices below market levels, or when sellers are exhausted. Unfortunately, we have no way of knowing until a large number of transactions outside the $650 billion market capitalization area.

The options market can help confirm bearish sentiment

However, there is another way to measure the optimism of professional traders. The 25% delta skew compares similar call (buy) and put (sell) options. When fear prevails, this indicator will become positive because the premium for protective puts is higher than for call options with similar risks.

When the market maker is bullish, the opposite is true, causing the 25% delta skew indicator to shift to the negative zone.

Deribit Bitcoin options 25% delta skew. Source:

A 25% delta skew from minus 10% to plus 10% is generally considered neutral. However, the indicator has been above this range since June 30, indicating concerns about arbitrage platforms and market markets.

The last time the indicator showed bullish sentiment was on April 14, the exact date of the all-time high of $64,900.

Considering that even if the price of Bitcoin remained above $40,000 on June 15th, the derivatives indicators showed no signs of bullishness, so there is reason to believe that investors are now reluctant to open long positions. It is not yet clear what triggers a change in mood, but it certainly requires more than a 10% rebound.

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