Bitcoin price falls to 2-month low, but derivatives markets reflect traders’ interest
After a brief stint with the $63,800 mark on July 1, the price of Bitcoin fell sharply, reaching a low of $56,746 on July 4. This three-day plunge represents an 11% drop from its peak, and despite efforts to regain the $58,000 support, bitcoin's price is still 21.5% below the $73,757 hit on March 14.
Still, Bitcoin (BTC) derivatives in China and demand for the stability coin suggest that traders are not ready to give up, indicating the continuation of the 2024 bull market.
Bitcoin prices fell as S&P 500 and gold closed at all-time highs
The S&P 500 index hit a new all-time high on July 3, and gold remains 4% shy of $2,450 hit on May 19. The stock market rally was driven by better-than-expected corporate earnings and rising expectations. Interest rates will be cut by the US Federal Reserve in 2024. This situation shows that the decline in the cryptocurrency market is not related to the widespread demand for risky assets or alternative investments.
Additionally, the U.S. 5-year Treasury yield has remained at 4.33% over the past four weeks, indicating no movement toward a “flight to quality” where investors typically flock to safe-haven assets. This trend leads to lower yields as demand for government-backed bonds increases and inflationary fears prompt traders to seek higher profits. However, none of these shifts have materialized recently, leaving Bitcoin's 19% four-week slide unsupported by broader macroeconomic trends.
Despite the strong selling pressure, Bitcoin whales and market makers have shown strength, as evidenced by two key derivative metrics.
Bitcoin derivatives benchmarks remain neutral as demand for the stablecoin rises in China.
Professional traders often like monthly contracts because they don't involve cash flow. In the independent market, these contracts usually trade 5% to 10% higher to compensate for their extended settlement period.
The data indicates that the BTC futures premium fell to 7.5% on July 4 but remains in neutral territory. Notably, it crossed the 10% bullish threshold last July 2, but that lasted less than four days. The current futures premium equates to 15 percent of the 12-day price adjustment between June 21 and June 24.
Traders should consider the options market to assess investor sentiment. At 25%, a delta skew metric increase of more than 8% indicates a bearish outlook, while a negative 8% indicates overoptimism.
Currently, the 25% delta skew of BTC options is at 0%, indicating a balanced price between call (buy) and put (sell) options. Although this represents a drop in confidence compared to last week's -5%, it still falls within neutral territory. Basically, there doesn't seem to be an urgent need to hedge through Bitcoin options.
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To understand whether the decline in interest in Bitcoin futures reflects broader market sentiment, it's worth looking at the stable demand for the coin in China. Typically, high retail cryptocurrencies make stablecoins trade at 2% or more above the official US dollar rate. Conversely, a decline often indicates bear markets.
The premium for China's USDC stablecoin was It fell below 1 percent on June 28, suggesting a rush to offload cryptocurrency holdings. However, this trend changed on July 4, the premium returned to a neutral 1.8%. This rebound reflects an increase in recent buying activity as traders convert fiat CNY into the stablecoin.
Considering that Bitcoin derivatives do not show signs of depression, such data reinforces the belief that the price of BTC will soon find the support level of $60,000.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
