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Bitcoin's Surprise Surge: Holding $30K in Sight
Bitcoin enthusiasts are breathing a sigh of relief as two crucial price indicators hint that the $30,000 mark could serve as a strong foundation for the bulls.
Catching many traders off guard, Bitcoin managed to hover above $31,000 following a surprising 24.3% leap between June 15 and June 23. This unexpected rally not only rattled bears, resulting in $165 million in liquidated short futures contracts, but also shook investors dabbling in Bitcoin derivatives.
The Inflation Conundrum: A Shift in Global Monetary Policies
A prevailing uncertainty in global financial markets is the impact of inflation, a reality underlined by the Bank of England's recent 50-basis-point interest rate hike. The wave of rate adjustments has now reached Norway and Switzerland, resulting in the costliest capital in over a decade for the region.
During a June 21 hearing before the United States House Financial Services Committee, Federal Reserve Chair Jerome Powell expressed that reining in inflation to the desired 2% was still a considerable journey. Powell also hinted that nearly all FOMC participants anticipate further rate hikes before year-end.
Strategists at JPMorgan, led by Marko Kolanovic, pointed out that the "economy's recent resilience may delay the onset of a recession". They proposed that the impact of central bank monetary tightening is still to be seen, and "a recession will likely be necessary to return inflation to target."
The Strength of Bitcoin Amid Economic Tensions
Investors are now questioning Bitcoin's ability to maintain trading above the $30,000 threshold amidst potential economic downturns and central bank actions to curb capital demand. Therefore, the focus should be on Bitcoin futures contract premiums and BTC options' hedging costs.
Bitcoin Derivatives Show Signs of Recovery
Quarterly Bitcoin futures, favored by whales and arbitrage desks, often trade at a slight premium to spot markets. This implies sellers demand a higher fee for delaying settlement.
Therefore, in a robust market, BTC futures contracts should trade at an annualized premium of 5% to 10% — known as contango, a situation not exclusive to crypto markets.
The longing for leveraged BTC increased a bit as the futures contract premium climbed from 3.2% to 4.3% on June 22, although it remains shy of the neutral 5% mark.
It's also crucial to scrutinize options markets to gauge whether the recent correction has stimulated investor optimism. The 25% delta skew serves as a reliable indicator of when arbitrage desks and market makers overcharge for upward or downward protection.
Gauging the Market Sentiment
Typically, a 4.3% futures basis and a negative 8% delta skew are viewed as neutral market indicators. However, following Bitcoin's 21.5% rally between June 15 and June 22, these indicators suggest a healthy level of skepticism amongst derivative contract buyers, leaving room for additional leverage if required.
Concerns over the legal dispute between Binance and the U.S. Securities and Exchange Commission pose a potential risk to BTC futures contracts. The rulings from the U.S. District Court for the District of Columbia could significantly impact the crypto market, considering Binance's dominant market share in spot and derivatives trading.
Crypto regulatory ambiguities and potential economic recession risks might explain Bitcoin derivatives traders' lackluster enthusiasm. Absent any glaring triggers for a drastic BTC price correction, bulls have just enough optimism to sustain the positive trend.
