Bitcoin Set to Reclaim $90,000: Insights from Derivatives Metrics

Bitcoin has been a focal point in the financial world, and recent derivatives metrics suggest that it may be on the verge of reclaiming the $90,000 mark. Despite experiencing a staggering $920 million in long liquidations, the resilience of Bitcoin is evident as it navigates through these turbulent waters. As of now, Bitcoin has struggled to maintain levels above $85,000, particularly noted on March 14, even with a 1.9% gain in the S&P 500 index. This raises critical questions among traders regarding the sustainability of the current bull market and the duration of the ongoing selling pressure.

Understanding Bitcoin’s Recent Price Movements

Bitcoin’s price has not traded above $90,000 for over a week, leading to speculation about the market’s direction. The cryptocurrency experienced a significant drop of 30% from its all-time high of $109,354 recorded on January 20. However, from a derivatives perspective, Bitcoin metrics indicate a level of resilience that could support a rebound. The Bitcoin basis rate, which measures the premium of monthly contracts over spot markets, has shown signs of recovery after briefly signaling bearish sentiment on March 13.

Analyzing the Bitcoin Basis Rate

Traders typically expect a premium of 5% to 10% annually to offset the longer settlement periods associated with derivatives contracts. A basis rate falling below this threshold often indicates weak demand from leveraged buyers. Currently, the basis rate stands at 5%, which, while lower than the 8% recorded two weeks ago, remains within neutral territory. This suggests that while there is some caution in the market, the demand for Bitcoin derivatives is not entirely weak.

Correlation with Traditional Markets

Interestingly, Bitcoin’s price movements have closely mirrored those of the S&P 500, suggesting that investor risk aversion may not be solely tied to Bitcoin itself. This correlation challenges the narrative of Bitcoin as a non-correlated asset, particularly in the short term. If Bitcoin continues to be influenced by the stock market, which is currently under pressure due to economic uncertainties, investors may further reduce their exposure to risk-on assets, opting instead for safer short-term bonds.

Central Banks and Economic Stimulus

Despite the current market challenges, central banks are anticipated to implement stimulus measures to avert a recession. This could bode well for scarce assets like Bitcoin, which may outperform in such an environment. According to the CME tool, markets are pricing in less than a 40% chance of US interest rates dropping below 3.75% from the current 4.25% baseline ahead of the upcoming FOMC meeting on July 30.

Potential for Bitcoin to Reclaim $90,000

Many analysts believe that Bitcoin could reclaim the $90,000 level, especially if the S&P 500 manages to recover from its recent 10% losses. However, in a worst-case scenario, panic selling of risk-on assets could persist, leading to continued underperformance of Bitcoin in the coming months. This is particularly true if spot Bitcoin exchange-traded funds (ETFs) continue to face significant challenges.

Current Sentiment Among Professional Traders

Professional traders currently appear to be sidelined when it comes to using Bitcoin options for hedging, as indicated by the 25% delta skew metric. This suggests that few market participants anticipate a retest of the $76,900 level in the near future. Typically, bullish sentiment results in put (sell) options trading at a discount of 6% or more, while bearish periods see this indicator rise to a 6% premium, as observed briefly on March 10 and March 12. The current 25% delta skew remains within a neutral range, reflecting a balanced market sentiment.

Examining Trader Sentiment Through Margin Markets

To gain a deeper understanding of trader sentiment, it is essential to examine BTC margin markets. Unlike derivatives contracts, which maintain a balance between longs (buyers) and shorts (sellers), margin markets allow traders to borrow stablecoins to purchase spot Bitcoin. This dynamic can provide additional insights into market behavior and trader confidence.

Conclusion: The Road Ahead for Bitcoin

In conclusion, while Bitcoin faces challenges in the short term, the underlying derivatives metrics suggest a potential for recovery. The interplay between Bitcoin and traditional markets, along with the anticipated actions of central banks, will play a crucial role in determining the cryptocurrency’s trajectory. As traders navigate this complex landscape, the possibility of Bitcoin reclaiming the $90,000 level remains a focal point for market participants.