A surprise price correction of $860 on September 6 led to Bitcoin (BTC) from $19,820 to $18,960 in less than two hours. The move sparked $74 million in Bitcoin futures settlements on derivatives exchanges, the largest in nearly three weeks. The current level of $18,733 is the lowest since July 13 and marks a 24% correction from the rally to $25,000 on August 15.
It is worth noting that a 2% rally towards $20,200 occurred in the early hours of September 6, but the move quickly moderated and Bitcoin resumed trading near $19,800 within an hour. The price action of Ether (ETH) was more interesting, gaining 7% in the 48 hours before the market correction.
Any conspiracy theory regarding investors shifting to favor the altcoin can be dismissed as Ether fell 5.6% on Sept. 6, while Bitcoin’s $860 loss represents a 3.8% change.
The market has been a bit stagnant since the August 27 comments from the chairman of the US Federal Reserve, Jerome Powell, were followed by a $1.25 trillion loss in US stocks in a single day. At the annual Jackson Hole Economic Symposium, Powell said larger interest rate hikes were still firmly on the table, causing the S&P 500 to close down 3.4% that day.
Let’s take a look at crypto derivatives data to understand if investors have been pricing in higher odds of a recession.
Professional traders have been bearish since last week
Quarterly futures are often avoided by retail traders due to the price difference from spot markets. Even so, they are the preferred instruments of professional traders because they avoid the fluctuation of financing rates which often occurs in a perpetual futures contract.
In healthy markets, the indicator should trade at an annualized premium of 4% to 8% to cover associated costs and risks. Therefore, it is safe to say that derivatives traders had been neutral to bearish for the past month because the Bitcoin futures premium stayed below 3% the entire time. This data reflects the unwillingness of professional traders to add long (bullish) leveraged positions.
They should also be analyzed options markets of Bitcoin to exclude the specific externalities of the futures instrument. For example, the 25% delta slope is a telltale sign when market makers and arbitrage desks are overcharging for upside or downside protection.
In bear markets, option investors give increased odds of a price dump, causing the slope indicator to rise above 12%. On the other hand, bull markets tend to push the bias indicator below negative 12%, meaning bearish put options are discounted.
The 30-day delta slope had been above the 12% threshold since September 1, indicating options traders were less inclined to offer downside protection. These two derivative metrics suggest that the drop in Bitcoin price on September 6 might have been partially expected, which explains the low impact on liquidations.
By comparison, Bitcoin’s $2,500 crash on August 18 triggered $210 million in leveraged long (buyer) liquidations. Still, the prevailing bearish sentiment does not necessarily translate into adverse price action. Therefore, tread carefully when whales and market markers are less inclined to add long leverage positions and offer downside protection options.
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