Bitcoin experienced a slight dip in price on October 21st, dropping to $67,000 and erasing the gains it had made in the previous three days. Analysts believe that this correction was influenced by investors reducing their exposure to Bitcoin due to concerns about potential contagion from traditional markets. However, despite these fears, the metrics for BTC derivatives remained stable, indicating that demand for Bitcoin derivatives as a hedge remained steady.
If large investors or arbitrage desks had anticipated further decline in the market, the derivatives metrics would have shown more volatility. However, this was not the case, suggesting that market participants were not overly concerned about the price correction.
The premium for Bitcoin futures, which typically ranges between 5% and 10% in neutral markets, was only slightly impacted on October 21st. The higher pricing for monthly Bitcoin futures, which reflects the extended settlement period, indicates a bullish sentiment when the premium exceeds 10%. The annualized premium (basis rate) for Bitcoin futures remained above 9% on October 21st, even as the price of Bitcoin dipped to the $67,000 support level.
It is important to note that these observations are based on Bitcoin futures markets, and it is necessary to confirm if the sentiment was isolated to this particular market. However, when looking at price charts, it appears that Bitcoin’s price movement mirrored the intraday performance of the stock market.
Arif Husain, the head of fixed-income at T. Rowe Price, predicted that the US 10-year Treasury yield would test the 5% threshold in the next six months. This forecast is driven by rising inflation expectations and concerns over government fiscal spending. When investors sell their bonds, yields increase, indicating a search for higher returns.
Husain also mentioned that the government plans to issue new debt, while the Federal Reserve is trying to shrink its balance sheet to control inflation and prevent the economy from overheating. The US debt interest costs have surpassed $1 trillion annually, leading the central bank to consider lowering interest rates.
In recent times, the fear, uncertainty, and doubt (FUD) surrounding the macroeconomic environment have significantly influenced Bitcoin’s price trends. Although Bitcoin is often seen as uncorrelated to traditional markets, there has been a correlation of over 80% between Bitcoin and the S&P 500 over the past month, indicating that both asset classes have been moving in tandem. This correlation is further supported by the increasing correlation between Bitcoin and gold.
Bitcoin options markets also demonstrate the resilience of derivatives. The 25% delta skew metric shows that put options are trading at a discount compared to call options. A skew between -7% and +7% is considered neutral, and the current metric sits at the borderline of a neutral to bullish market.
Overall, despite the price correction, Bitcoin derivatives have remained resilient, with traders not reacting with panic to the decline. If traders were anticipating further downside, the skew would have shifted towards zero or higher. These observations suggest that Bitcoin derivatives continue to be a reliable tool in the market.
It is important to note that this article is for general information purposes only and should not be regarded as legal or investment advice. The views expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.