BTC bulls think the lows are in place: neutral-to-bearish price formation supports their position

BTC bulls think that the lows are in place, and a neutral-to-bearish price formation and the lack of a futures premium supports their position.

Bitcoin (BTC) has been pressured by the descending triangle pattern for the past three weeks, and while some traders consider it a bullish reversal pattern, $19,000 support is still crucial to determine the bulls' fate.

BTC-USD 12-hour price. Source: TradingView
The price of BTC-USD at the end of the last 12 hours. Source: TradingView

Despite the lack of a clear price bottom, Bitcoin derivatives metrics have significantly improved since June 30 and positive news from global asset manager VanEck may have eased trader's sentiment.

On July 5, two retirement funds in the U.S. state of Virginia announced a $35 million investment in VanEck's cryptocurrency-focused investment fund.

On the same day, a Huobi exchange subsidiary received its money services business (MSB) license from the United States Financial Crimes Enforcement Network (FinCEN). The Seychelles-based company stated that this license will allow it to expand its crypto-related business in the U.S.

On July 7, decentralized finance staking and lending platform Celsius Network announced that it had repaid its debt to Maker (MKR) protocol fully.

After suffering major losses across multiple positions, several crypto yield platforms are on the verge of bankruptcy, including Celsius. The recent cryptocurrency price crash was accelerated by forced sales on leveraged positions by exchanges and DeFi applications.

At the moment, market players have mixed views on the possible impact of contagion and their optimism that the $19,000 support is strengthening. Because of this, it is crucial to analyze derivatives data to understand whether investors are pricing in higher odds of a market downturn.

Bitcoin futures price rises slightly

Traders in the retail sector usually avoid trading quarterly futures because of their fixed settlement date and the difference in price from spot markets. The contracts' biggest advantage, however, is that they do not have a fluctuating funding rate; as a result, arbitrage desks and professional traders are common.

In spot markets, sellers usually ask for more money when they agree to withhold settlement for a longer period. This is known as "contango" and it is not unique to crypto markets. In healthy markets, futures should trade at a 5% to 10% annualized premium.

Bitcoin 3-month futures’ annualized premium. Source: Laevitas
The annualized premium of Bitcoin 3-month futures. Source: Laevitas

On June 28, the annualized futures' premium for Bitcoin turned negative, suggesting low demand from leverage buyers. However, this bearish signal did not last long as the indicator shifted to positive territory on July 4.

Traders are wary of each price surge

When trading Bitcoin futures, traders must also assess the options market. For example, the 25% delta skew indicates that arbitrageurs are overcharging for downside or upside protection.

When bullish markets are in effect, options traders give higher odds of a price increase, causing the skew indicator to fall below -12%. A market's generalized fear sentiment can create a positive skew of 12% or higher.

Bitcoin 30-day options 25% delta skew: Source: Laevitas
Laevitas, a financial analysis firm, reports that the 30-day options for Bitcoin have a 25% delta skew:

The highest-ever record 30-day delta skew was recorded on June 18, typical of extremely bearish markets. The current 16% skew level, however, shows that investors are unwilling to protect their downside risk by purchasing put options at high prices.

The market is still under pressure as a result of contagion

Some traders think that Three Arrows Capital's inability to meet its margin calls was the reason for the downward movement in $17,580.

A few investors are saying that a "generational bottom" has been reached, but Bitcoin is still in a descending triangle formation, which means that investors are not yet bullish.

Since June 30, the Bitcoin derivatives market has seen some improvement. At the same time, investors are concerned that further damage could be done by such a large venture capital and crypto asset manager.

In some circumstances, the best strategy is to wait for a clearer market structure and avoid leverage regardless of how sure you are that a cycle bottom has been seen.