Over the past 17 days, Bitcoin (BTC) price has been trading within a narrow 8.5% range from $27,250 to $29,550, causing the 40-day volatility metric to drop below 40%. This trend extends beyond cryptocurrencies as the S&P500 index’s historical volatility has reached 17%, its lowest level since December 2021. The question now is whether $28,000 might become the new resistance. Despite Bitcoin futures and options data suggesting otherwise, macroeconomic conditions continue to play a significant role in driving price fluctuations in both the short and medium term.
BTC price has flattened due to investors losing their risk appetite. Multiple reasons could explain the low price oscillations in risk markets, such as concerns about a recession, investors waiting for the U.S. Federal Reserve to end its rate hikes, or an increased demand for fixed-income trades. However, no one can pinpoint the exact cause of investors restricting their risk appetite and driving Bitcoin’s price sideways.
Many market observers, including billionaire fund manager Warren Buffett, are concerned about the potential turbulence that commercial real estate could trigger. While some argue that the U.S. debt ceiling discussion and banking crisis could contribute to the weakening of the U.S. dollar, Buffett remains unconvinced about alternative investments like gold.
Treasury Secretary Janet Yellen warns that a “steep economic downturn” could occur if Congress fails to act on the debt ceiling issue in the coming weeks. Ultimately, raising the debt limit would inject more liquidity into the markets and trigger inflation. This multifaceted environment of inflation risks, economic downturn, and weakening U.S. dollar might have made investors wary of risk assets and more focused on fixed-income trades with interest rates above 5% per year.
An alarming sign for Bitcoin would be a negative futures contract premium or increased hedging costs using options. Hence, investors should closely monitor these BTC derivatives metrics.
Bitcoin futures contracts should ideally trade at a 5-to-10% annualized premium, called contango, in healthy markets. However, BTC traders have been cautious over the past two weeks, and the recent 6.8% correction, which brought the futures premium to its lowest level in two months at 1.5%, has further diminished their confidence.
In understanding investor sentiment in options markets, the 25% delta skew is a useful indicator, providing insights into whether protective put options’ premium trades are at a discount or premium to neutral-to-bullish call options. As of now, the risk appetite for BTC options pricing appears balanced, with the 25% delta skew indicator hovering around 0%.
Bitcoin options and futures markets suggest that professional traders lack confidence and lean toward sideways trading. As a result, there’s no reason for investors to become bearish due to weakening derivatives indicators. If there was strong conviction that $28,000 will become resistance, the market would reflect a higher appetite for risk-averse put options and a negative BTC futures premium or “backwardation.”
It’s essential to note that this article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.