The Bitcoin (BTC) price experienced a decline for eight consecutive days until May 13, culminating in a 9.4% correction. This event has not occurred since June 14, 2022, when withdrawals were halted on the Celsius lending platform and FUD emerged from U.S. software firm MicroStrategy following the liquidation of a loan at $21,000.
This time, the crypto faced a different set of challenges as it retested the $25,800 support on May 12, with network congestion and increased transaction fees. Some traders and analysts have even speculated about a coordinated attack to cause network instability. This would make the network unusable for smaller players and potentially affect layer-2 scaling solutions such as the Lightning Network.
However, the FUD surrounding the recent events appears to be losing steam, as the average transaction fee has already dropped 83% to $5.10 from a $31 peak on May 7. Compared to the Ethereum network’s average transaction fee, which held above $18 between May 5 and May 11, Bitcoin’s fees seem to be returning to more reasonable levels.
Now, traders are questioning whether the cryptocurrency can bounce back above $28,000 given the uncertainty surrounding regulatory changes. Examining Bitcoin futures and options data displays moderate weakness, but a BTC price rally is not out of the question as investors price in higher odds of a U.S. government debt default.
The current high interest rate environment makes fixed-income trades more attractive, but it may put more pressure on risky assets like Bitcoin. Traders need to be cautious if Bitcoin futures contract premiums flip negative or if increased costs for hedging with options occur.
Bitcoin futures contracts in healthy markets typically trade at a 5 to 10% annualized premium. Looking at the two-month futures annualized premium, it is evident that traders have been cautious over the past two weeks. However, the BTC futures premium remained at 1% or higher, even after the 12.7% 7-day correction.
Options markets analysis provides insight into investor sentiment during the recent Bitcoin correction. When the 25% delta skew rises above 7%, traders anticipate a price drop. However, the skew metric remained at 4% on May 11, showing that traders have been bearish but not overwhelmingly so.
Although pro traders are demonstrating less confidence, reducing the odds of a quick bounce above $28,000, the recent correction has not pushed BTC derivatives metrics from neutral to bearish. As such, those betting on a bull trap with a deeper price correction might be disappointed in the end.
Source: Cointelegraph
