Cryptocurrency traders were caught by surprise after the Oct. 13 Consumer Price Index Report showed inflation in the United States rising by 0.6% in September versus the previous month. The slightly higher-than-expected number caused Bitcoin (BTC) to face a 4.4% price correction from $19,000 to $18,175 in less than three hours.
The abrupt movement caused $55 million in Bitcoin futures liquidations at derivatives exchanges, the largest amount in three weeks. The $18,200 level was the lowest since Sept. 21 and marks an 8.3% weekly correction.
Bitcoin/USD 1-hour price. Source: TradingView
It is worth highlighting that the dip under $18,600 on Sept. 21 lasted less than 5 hours. Bears were likely disappointed as a 6.3% rally took place on Sept. 22, causing Bitcoin to test the $19,500 resistance. A similar trend is happening on Oct. 13 as BTC currently trades near $19,000.
The stock market also reacted negatively as the tech-heavy Nasdaq Composite Index moved down 3% after the inflation data was released. After the initial panic selling, Nasdaq adjusted to a 2% daily loss as analysts reaffirmed their expectations toward a 0.75% interest rate increase by the U.S. Federal Reserve Committee in November.
Investors became even more bearish after BlackRock Inc (BLK) reported a 16% drop in profit versus the previous year. Meanwhile, financial heavyweights JPMorgan Chase (JPM) and Morgan Stanley (MS) are set to report on Oct. .
Contrary to U.S. President Joe Biden’s appeal, Saudi Arabia’s Ministry of Foreign Affairs put out a rare statement on Oct. 13 defending the Organization of the Petroleum Exporting Countries’ production cut. The White House wanted to delay the decision until after the midterms. Nevertheless, the oil producer group decided to decrease the supply target by 2 million barrels per day beginning in November.
All of these developments are increasing investors’ bearish emotions. ao get a better gauge on what is happening in the crypto sector, traders should look at derivatives data to see if investors were taken by surprise after the 4.4% dip below $18,200.
Futures markets were bearish for the past month
Retail traders usually avoid quarterly futures due to their price difference from spot markets. They are, however, professional traders’ preferred instruments because they prevent the fluctuation of funding rates that often occurs in a perpetual futures contract.
Bitcoin 3-month futures annualized premium. Source: Laevitas
The indicator should trade at a 4% to 8% annualized premium in healthy markets to cover costs and associated risks. Derivatives traders had been neutral to bearish for the past month because the Bitcoin futures premium remained below 1% the entire time.
This data reflects professional traders’ unwillingness to add leveraged long (bull) positions despite the low cost. However, one must also analyze the Bitcoin options markets to exclude externalities specific to the futures instrument.
Option traders are unwilling to offer downside protection
The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection. For example, in bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 12%. On the other hand, bullish markets tend to drive the skew indicator below negative 12%, meaning the bearish put options are discounted.
Bitcoin 30-day options 25% delta skew: Source: Laevitas
The 30-day delta skew had been above the 12% threshold since Oct. 10, signaling that options traders were less inclined to offer downside protection. These two derivatives metrics suggest that the Bitcoin price dump on Oct. 13 might have been partially expected, which explains the relatively low impact on liquidations.
More importantly, the prevailing bearish sentiment remained after the CPI inflation was announced. Consequently, whales and markers are less inclined to add leverage longs or offer downside protection. Considering the weak macroeconomic conditions and global political tension, the odds currently favor the bears.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
