Bitcoin’s (BTC) previous support level of $19,000 is becoming increasingly distant after rising 22.5% in nine days. However, there is little optimism as the impact of the Three Arrows Capital (3AC), Voyager, Babel Finance and Celsius crises remains uncertain. Moreover, the contagion claimed another victim after Thai crypto exchange Zipmex stopped withdrawing funds on July 20.

Bitcoin/US dollar 1-day price. Source: Trading View
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Bulls’ hopes are dependent on the $23,000 support strengthening over time, but derivatives readings show professional traders remain very skeptical of a sustained recovery.

Macroeconomic headwinds favor scarce assets

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Some analysts attribute the strength of the crypto market to lower-than-expected China’s gross domestic product data, leading investors to expect further expansionary action from policymakers. China’s economy expanded 0.4% in the second quarter from a year earlier as the country continued to struggle with self-imposed restrictions to curb another outbreak of Covid-19 infections. according on CNBC.

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Inflation in the United Kingdom in June was 9.4%. marked A 40-year high, and ostensibly to help the population, Chancellor of the Exchequer Nadhim Zahavi announced a $44.5bn (£37bn) relief package for vulnerable families.

Under these conditions, bitcoin reversed its downtrend as politicians tried to solve the seemingly intractable problem of a slowing economy amid ever-increasing public debt.

However, the cryptocurrency sector faces its own challenges, including regulatory uncertainty. For example, on July 21, the U.S. Securities and Exchange Commission (SEC) labeled nine tokens as “crypto asset securities,” thus not registering with the regulator.

Specifically, the SEC cited Powerledger (POWR), Kromatika (KROM), DFX Finance (DFX), Amp (AMP), Rally (RLY), Rari Governance Token (RGT), DerivaDAO (DDX), LCX, and XYO. The regulator has charged a former Coinbase product manager with “insider trading” after he allegedly used non-public information for personal gain.

Currently, bitcoin investors are facing too much uncertainty despite a seemingly benign macro environment that should favor scarce assets like BTC. For this reason, analyzing derivatives data is useful in understanding whether investors are estimating higher chances of a downturn.

Professional traders remain skeptical of price recovery

Retail traders generally avoid quarterly futures due to their price differential with the spot markets. However, they are the preferred tools of professional traders because they prevent constant fluctuations in contract funding rates.

These fixed month contracts usually trade at a small premium to the spot markets because investors are demanding more money to keep settlement. But this situation is not unique to crypto markets, so in healthy markets, futures should trade at an annual premium of between 4% and 10%.

Annualized premium of 3-month bitcoin futures. Source: Laevitas

The premium of Bitcoin futures flirted with the negative area in mid-June, which is usually seen during extremely bearish periods. A base rate of just 1%, or an annual premium, reflects the reluctance of professional traders to go long (bullish) with leverage. Investors remain skeptical of a price recovery despite the low cost of opening a bullish trade.

It is also necessary to analyze the Bitcoin options markets in order to exclude external factors specific to the futures instrument. For example, a delta skew of 25% is a telling sign that market makers and arbitrage bureaus are overpriced for up or down protection.

In a bear market, options investors give a higher chance of a price drop, causing the skew indicator to rise above 12%, while in a bull market, the opposite is true.

30-Day Bitcoin Options with 25% Delta Skew: Source: Laevitas

The 30-day delta skew peaked at 21% on July 14 as Bitcoin struggled to clear the $20,000 resistance. The higher the indicator, the less likely options traders are to offer downside protection.

More recently, the indicator has fallen below the 12% threshold, entering the neutral zone and no longer at levels reflecting extreme aversion. Hence, options markets are currently showing a balanced risk assessment between a bull market and yet another retest of the $20,000 area.

Some metrics suggest that the bottom of the Bitcoin cycle is behind us, but until traders get a clearer picture of the regulation and liquidity outlook for centralized crypto providers as the Three Arrows Capital crisis unfolds, the chances of breaking $24,000 remain uncertain.

The views and opinions expressed here are solely those of author and do not necessarily represent the views of Cryptooshala. Every investment and trading move involves risk. You should do your own research when making a decision.