Bitcoin price data indicates $30K will hold as support this time.
Bitcoin (BTC) has been trading above $31,000 after a sudden 24.3% rally between June 15 and June 23, which caught many off guard. This caused $165 million in short futures contract liquidations for bears, but also some discomfort for investors using Bitcoin derivatives. The biggest question mark for traditional markets remains inflation. Recent interest rate increases by the Bank of England, Norway, and Switzerland have led to the highest cost of capital in over a decade for the region. Federal Reserve Chair Jerome Powell said that “the process of getting inflation back down to 2% has a long way to go” and that “nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year.” JPMorgan strategists led by Marko Kolanovic said that “the economy’s recent resilience may delay the onset of a recession,” so the impacts of the monetary tightening movement by the central bank are yet to be felt. Investors now question whether Bitcoin has the strength to trade above the $30,000 resistance amid the bearish pressure emerging from a potential economic recession and further central bank activity aimed at curbing the demand for capital. Therefore, traders should closely monitor Bitcoin futures contract premiums and the costs of hedging using BTC options.
Bitcoin quarterly futures are popular among whales and arbitrage desks, but these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement. As a result, BTC futures contracts in healthy markets should trade at a 5% to 10% annualized premium, a situation known as contango, which is not unique to crypto markets. The demand for leveraged BTC longs slightly increased as the futures contract premium jumped to 4.3% on June 22 from 3.2% one week prior, although it remains below the neutral 5% threshold. Traders should also analyze options markets to understand whether the recent correction has caused investors to become more optimistic. The 25% delta skew is a telling sign of when arbitrage desks and market makers overcharge for upside or downside protection.
Typically, a 4.3% futures basis and a negative 8% delta skew would be considered neutral market indicators, but that is not the case given the 21.5% Bitcoin price rally between June 15 and June 22. The heated legal battle between Binance and the U.S. Securities and Exchange Commission presents a risk for BTC futures contracts. The decisions from the U.S. District Court for the District of Columbia could severely impact the cryptocurrency market, as Binance holds the biggest market share in the spot and derivatives markets. Uncertainty around the crypto regulatory environment and the growing risks of an economic recession are possible explanations for Bitcoin derivatives traders’ lack of excitement. Apart from those external risks, there is no apparent driver to justify a sharp BTC price correction, giving bulls just the right amount of optimism to keep the positive momentum.