Bitcoin (BTC) experienced a drop in price on October 21, falling to $67,000 and erasing the gains made in the previous three days. Some analysts believe that this correction was a result of investors reducing their Bitcoin exposure due to concerns about contagion from traditional markets. Despite these concerns, the metrics for BTC derivatives remained stable.
Despite worries about slowing economies and weakening confidence in government debt refinancing, the demand for Bitcoin derivatives as a hedge remained steady. If large investors or arbitrage desks anticipated further decline, there would have been more volatility in these metrics.
On October 21, the premium for Bitcoin futures, which is typically between 5% and 10% in neutral markets, was only slightly affected. The higher pricing of monthly BTC futures indicates a bullish sentiment when the premium exceeds 10%.
Even as Bitcoin retested the $67,000 support level, the annualized premium (basis rate) for Bitcoin futures remained above 9% on October 21. However, it is important to confirm whether this sentiment was limited to Bitcoin futures markets. Based solely on price charts, it appears that Bitcoin’s price movement mirrored the intraday performance of the stock market.
Arif Husain, head of fixed-income at T. Rowe Price, stated that the US 10-year Treasury yield will likely reach the 5% threshold in the next six months due to rising inflation expectations and concerns about government fiscal spending. When investors sell their bonds, yields increase, indicating a desire for higher returns.
Husain also noted that the government plans to issue a large amount of new debt, while the Federal Reserve is trying to reduce its balance sheet to control inflation and prevent the economy from overheating. The US debt interest costs have exceeded $1 trillion on an annualized basis, leading the central bank to consider lowering interest rates.
In the current macroeconomic environment, fear, uncertainty, and doubt (FUD) have had a significant impact on Bitcoin’s price trends. Although Bitcoin is often seen as uncorrelated to traditional markets, recent data suggests that it has remained closely aligned with the S&P 500, with a 40-day correlation above 80% in the past month. The correlation between Bitcoin and gold has also increased, surpassing 80% on October 3.
Bitcoin options markets also support the idea of derivatives resilience. The 25% delta skew metric shows that put options are trading at a discount compared to call options, indicating a neutral to bullish market.
Overall, the reaction of derivatives traders to Bitcoin’s recent price decline suggests that they were not in a state of panic. If they expected further downside, the skew would have shifted towards zero or higher. Bitcoin derivatives continue to demonstrate resilience.
Please note that this article is for informational purposes only and should not be taken as legal or investment advice. The views expressed here are solely those of the author and do not necessarily represent the views of Cointelegraph.