Bitcoin’s price surge on Oct. 29 towards an all-time high seems to have leveled off, but the derivatives market is still showing signs of traders’ optimism for a potential recovery.
Analysis of Bitcoin futures and options markets indicates that traders are holding positions without overly relying on leverage, which is crucial for sustaining momentum towards new highs. However, it is important to understand the factors behind Bitcoin’s drop below $69,000 on Nov. 1.
Typically, when there is anticipation of a decline in Bitcoin’s price, the 25% delta skew metric rises above 7%, signaling that put options are priced higher due to increased demand.
Despite the recent pullback in Bitcoin’s price, derivatives markets appear stable. To gauge whether sentiment among Bitcoin traders has weakened, it is helpful to examine the funding rate of perpetual contracts. A neutral funding rate suggests a lack of strong conviction, while rates above 2.1% per month indicate excessive optimism.
On Nov. 1, there was no significant change in leverage demand, with the rate remaining neutral at 0.01% every 8 hours or approximately 0.9% per month. This suggests that leverage has not been the driving force behind Bitcoin’s recent rally, indicating a healthy market trend. Overall, Bitcoin derivatives markets are supporting a continued bullish market, potentially paving the way for further gains.
Various factors are influencing investor sentiment, with movements in the S&P 500 index closely correlated to Bitcoin’s recovery to $71,000 on Nov. 1. Both markets appear to be reacting to similar macroeconomic indicators.
During times of economic uncertainty, traders often seek safety in cash positions and Treasury bills, which could explain recent declines in both the stock market and Bitcoin following negative reports from tech giants like Intel. The market sentiment shifted slightly on Nov. 1 due to disappointing payroll growth data and rising wages in the US, sparking concerns about inflation.
Market analysts are anticipating a 0.25% interest rate cut by the US Federal Reserve on Nov. 7, driven by events like the US presidential elections on Nov. 5 and the Federal Open Market Committee (FOMC) decision. Stimulus efforts to boost the economy can lead to a depreciation of the US dollar, potentially benefiting Bitcoin’s price in the medium term.
It is important to note that this article is for informational purposes only and should not be construed as legal or investment advice. The opinions expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph.