Key Points:
The BTC futures premium remains neutral, indicating that traders are not panicking over the recent drop to $6,630.
The skew in Bitcoin options and macroeconomic concerns suggest limited willingness to break through the $120,000 mark.
Bitcoin (BTC) faced a strong rejection after reaching an all-time high of $124,089 on Thursday. A drop below $117,500 triggered the liquidation of $227 million in bullish positions, although derivative indicators were largely unaffected.
Are traders overreacting to U.S. inflation data, or are there certain factors within the cryptocurrency market itself preventing it from breaking through the $122,000 level?
The annualized premium for BTC futures was hardly affected by the drop to $6,630. This indicator currently stands at 9%, within the neutral range of 5%–10%. This suggests that the recent all-time high was not driven by excessive leverage, and despite the drop below $118,000, traders remain relatively calm. However, the data indicates a lack of confidence in a rise to $150,000.
One might argue that the 3.3% year-over-year increase in the U.S. Producer Price Index (PPI) for July prompted traders to be more risk-averse, as the inflation data exceeded expectations. The initial negative reaction reflected a reduced likelihood of multiple rate cuts. However, the S&P 500 ultimately erased its intraday losses, suggesting that Bitcoin's sharp pullback may have been driven by other factors.
According to the CME FedWatch tool, the market currently expects a 61% probability that the Federal Reserve will lower interest rates to 3.75% or lower in January 2024, down from 67% a week ago. This indicates a decline in market confidence regarding aggressive easing, a backdrop that typically puts pressure on risk assets like Bitcoin.
Traders seem to have reacted negatively to U.S. Treasury Secretary Scott Bessent's comments about the government having no intention to expand its Bitcoin strategic reserves.
In an interview with Fox Business, Bessent also dismissed the suggestion of reallocating potential Treasury gold revaluation gains into Bitcoin. This statement contradicts market expectations, as it specifically mentions in an executive order signed by U.S. President Trump in March to "acquire more Bitcoin with a budget-neutral strategy."
To understand whether Bitcoin traders expect further declines, one should assess the delta skew of BTC options. Higher costs for put options (selling) typically indicate a bearish market, leading the indicator to exceed the neutral threshold of 6%.
Currently, the Bitcoin options skew is at 3%, showing a balanced market risk sentiment, reflecting a healthy state of the market. Notably, despite Bitcoin's repeated failure to hold above $120,000, traders continue to show resilience. While this does not indicate that the market is confident in a sustained rise, it does show that traders are not worried about retesting the $110,000 support level.
U.S. stock markets erased most of their losses following the latest inflation data, and Bitcoin traders are likely to take profits as prices approach historical highs. Broader concerns stem from the macroeconomic environment, especially as U.S. Treasury debt surpasses the $37 trillion mark.
Driven by central banks around the world to offset budget imbalances and expand balance sheets, Bitcoin still has potential upside through 2025. However, the sluggish performance in the derivatives market shows that market sentiment regarding Bitcoin's ability to decisively break through $120,000 remains limited.
Related: ARK Invest splurges $172 million to acquire Bullish stock, which surged 84% on its first day of trading.
Original: “Bitcoin (BTC) Gains Vanished Rapidly After Hitting All-Time High: Here’s Why”
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