Bitcoin (BTC) price finally breached the $30,000 level after the key price zone lasted as a ten-month resistance level. BTC price rose 6.5% on April 10 and the much-anticipated price increase ended a painful 12-day period of extremely low volatility, bringing the price closer to $28,200. Bulls are now confident that the bear market is officially over, especially since the BTC price is up 82% year-to-date.
Another interesting note is that, after the S&P 500 index posted a mere 0.1% gain and WTI oil fell 1.2% on April 10, Bitcoin’s decoupling from the traditional markets was confirmed. Bitcoin traders are likely expecting the Federal Reserve’s interest rate policy to reverse sooner rather than later.
The risk of deadlock may lie behind decoupling
Higher interest rates make fixed income investments more attractive, while businesses and households face additional costs to refinance their debt. Risk assets are considered bullish against recent tightening moves by the US central bank. However, fear of stagnation – a period of increased inflation and negative economic growth – would be the worst-case scenario for the stock market.
Fixed-income traders are betting that the Federal Reserve is likely to hike one more interest rate as the latest economic data showed moderate resilience. For example, the 3.5% US unemployment rate announced on April 7 is the lowest reading in half a century.
According to Bloomberg, the US Treasury market suggests a 76% chance that the Federal Reserve will raise the benchmark by 0.25% on April 29. Also in the sector is additional uncertainty over the impact of the banking crisis, with JPMorgan Chase, Wells Fargo and Citigroup scheduled to report first-quarter results on Friday.
Bitcoin’s rally above $30,000 could be the first evidence of a shift in investor perception from a risk market proxy to a scarce digital asset that could benefit from periods of inflationary pressures and weak economic growth.
Two important factors will determine whether the rally is sustainable: the use of high leverage increases the odds of forced liquidation during normal price fluctuations, and whether pro traders are pricing in the high probability of a market downturn using alternative instruments.
Bitcoin futures show modest improvement
Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to the spot market, indicating that sellers are seeking more money to delay settlement.
As a result, futures contracts in a healthy market should trade at a 5-to-10% annual premium — a situation known as contango, which is not unique to the crypto market.
Bitcoin traders have been cautious over the past few weeks, even with the recent breakout above $30,000, with no increase in demand for leveraged longs. However, the Bitcoin futures premium has improved slightly from a recent low of 3% on April 8 to the current level of 4.2%. This suggests that buyers are not using excessive leverage and there is effective demand in the regular spot market, which is healthy for the market.
Bitcoin alternative traders remain neutral
Traders should also analyze the options markets to understand if the recent correction has made investors more optimistic. A 25% delta skew is a telltale sign when arbitrage desks and market makers overcharge for upside or downside protection.
In short, if traders expect the price of Bitcoin to fall, then the Skew metric will rise above 7% and the excitement phases tend to be negative 7% skewed.
Related: MicroStrategy Bitcoin bets turn green as BTC price climbs to 10-month high
Currently, delta 25% skew options have moved from a balanced demand between call and put options on April 9 to a 4% discount to defensive puts on April 10. Although this indicates a slight increase in confidence, it is not enough to break 7% threshold for moderate bullishness.
In essence, the Bitcoin options and futures markets suggest that pro traders are a little overconfident, but not overly optimistic. The initial decoupling from traditional markets is promising as investors are showing confidence that crypto markets will benefit from higher inflationary pressures and it highlights traders’ belief that the Fed will not be able to raise interest rates again.
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