Despite $1.5K Flash Crash, The Bitcoin Futures Data Show Market Favouring Bulls
How is bitcoin price crash influencing the market? Why is it turning bullish? More on the news stated.
Bitcoin Price Crash
Despite $1 billion in liquidations, there are several key derivatives indicators showing investors are still strongly bullish on Bitcoin.
Leading to a sharp decline in the price of many top altcoins, was the sudden $1,500 drop in Bitcoin price on August 2 causing over $1 billion worth of liquidations on futures contracts.
Undoubtedly causing the exaggerated move down to $10,560 this massive figure represents 18% of the total $5.6 billion open interest.
In less than 48 hours the futures open interest recovered half of the loss and currently sitting at $ 5.2 billion. Mostly unscathed are derivative indicators like contango, funding rate, options 25% delta skew, and the put/call ratio.
As there is not a single indicator signaling excessive optimism or bearishness, despite such a hefty price move, investors’ positive expectations are coming regarding Bitcoin price remaining unfazed.
This comes different from May 10 as a massive $1,400 drop flipped the majority of indicators to bearish levels as it was the last time liquidations exceeded $1 billion.
As The Open Interest Barely Registered A Blip
It is important to observe that the recent open interest V-shaped recovery, therefore, differs from the one in mid-May as the futures open interest back then, suffered a $1.2 billion loss taking 22 days to recover the $3.6 billion mark.
The Contango Held Steady
One can infer whether professional traders are leaning bullish or bearish, by measuring the 3-month futures contracts premium to current spot levels. A situation known as contango is where a healthy market displays a slightly positive annualised rate.
After a couple of days flirting with a 15% annualised basis rate, that comes rather high when compared to the 1-year average of 6.5% the premium was toned down a bit.
Indicating positive expectations as professional traders are demanding more money to postpone financial settlement, it now stands at a healthy 11.5%.
Taking over a month to regain a healthy 5% level, by contrast, the 3-month annualised futures basis flirted with the negative side in May.
How Does The Perpetual Contracts Funding Return To Normal?
Usually having funding rates collected every 8 hours, perpetual futures are also known as inverse swaps. Here the positive rate thereby indicates longs using more leverage than shorts as they are also paying such a fee.
Although not alarming, the rates above 0.10% per 8 hours are unusual. It could only pressure buyers to reduce leverage when sustaining such levels for several days, as this is equivalent to 2.1% per week.
Indicating no sign of bearishness or excessive buyers’ leverage the funding rate has receded to a very healthy level and as the current situation hereby bears zero resemblance, to the May 10 crash as the funding rate coming negative meaning sellers are paying to keep open the positions.
Hereby the funding rate is reaching the 0.13% level back in May as the positive funding is occurring there weeks later.
Why The Options Markets 25% Delta Skew Remains Bullish?
Compared to equivalent bearish put options, the 25% delta skew measures how the more expensive market is pricing bullish call options.
Meaning protection to the upside is costlier, the 25% delta skew acts as an options traders’ fear/greed indicator and is currently sitting at a negative 12%. As it usually oscillates between -15% to +15% this is another positive indicator.
Indicating a slightly bearish trend, the indicator remained close to 4% after the May 10 crash. Higher than bullish calls were the premium for downside protection options.
As The Options Put/Call Ratio Remains Bullish
Measuring the calls total open interest against puts, is the options put-call ratio. Hereafter generally speaking the call options come to be used for bullish strategies whereas put options for the bearish ones.
Smaller than call options, the current put/call ratio of 67% meaning that put options open interest is 33%. Indicating that options traders are generally spending more money on call options, expecting price increases, the 1-year average stands at 59%.
Just three days ahead of May 10, the put/call indicator on the other hand peaked at 80%. That was the smallest difference between put and call options open interest in 10 months, despite remaining in the bullish territory.
Finally, Here Most Indicators Favour Bulls At The Moment
The fact is that as it somehow diminished professional investors' positive expectations, as there was no sign that recent Sunday’s $1,500 price crash. When Bitcoin took 24 days to set a new high, as there was undeniable data from derivatives markets differentiating from the May 10 crash.
Since July 24 the professional traders have been leaning bullish as there was no sign of such a significant price drop shaking buyers.
Creating a perfect scenario for altcoins to make new highs, overall, it does seem a good time to go against the majority.