Bitcoin (BTC) failed to sustain levels above $85,000 on March 14, despite a 1.9% gain in the S&P 500 index. More importantly, it has been over a week since Bitcoin last traded at $90,000, prompting traders to question whether the bull market is truly over and how long selling pressure will persist.
Bitcoin basis rate rebounds from bearish levels
From a derivatives perspective, Bitcoin metrics have shown resilience despite a 30% drop from its all-time high of $109,354 on Jan. 20. The Bitcoin basis rate, which measures the premium of monthly contracts over spot markets, has recovered to healthy levels after briefly signaling bearish sentiment on March 13.
Traders typically demand a 5% to 10% annualized premium to compensate for longer settlement periods. A basis rate below this threshold signals weak demand from leveraged buyers. While the current 5% rate is lower than the 8% recorded two weeks ago, it remains within neutral territory.
Central banks will eventually boost BTC price
Bitcoin price action has closely tracked the S&P 500, suggesting that factors driving investor risk aversion may not be directly tied to the top cryptocurrency.
However, this also challenges the idea of Bitcoin as a non-correlated asset, as its price behavior has aligned more closely with traditional markets, at least in the short term.
If Bitcoin’s price remains heavily dependent on the stock market, which is under pressure due to fears of an economic recession, investors are likely to keep reducing exposure to risk-on assets and shift toward short-term bonds for safety.
However, central banks are expected to implement stimulus measures to avoid a recession, and scarce assets like Bitcoin are likely to outperform as a result.
According to the CME FedWatch tool, the markets are pricing less than 40% odds for interest rates in the US below 3.75% from the current 4.25% baseline ahead of the July 30 FOMC meeting.
Nevertheless, Bitcoin should reclaim the $90,000 level as soon as the S&P 500 pares some of its recent 10% losses. But in a worst-case scenario, panic selling of risk-on assets could continue.
Under such conditions, BTC would likely keep underperforming over the next few months, especially if spot Bitcoin exchange-traded funds (ETFs) continue to experience significant and sustained net outflows.
Bitcoin derivatives show no signs of stress
Professional traders are not actively using Bitcoin options for hedging presently, as shown by the 25% delta skew metric. This implies that few market participants expect the BTC price to retest the $76,900 level anytime soon.
Bullish sentiment typically leads to put (sell) options trading at a 6% or higher discount. In contrast, bearish periods cause the indicator to rise to a 6% premium, as seen briefly on March 10 and March 12. However, the 25% delta skew has recently stayed within the neutral range, reflecting a healthy derivatives market.
To better gauge trader sentiment, examining BTC margin markets is important. Unlike derivatives contracts, which are always balanced between longs (buyers) and shorts (sellers), margin markets let traders borrow stablecoins to buy spot Bitcoin. Similarly, bearish traders can borrow BTC to open short positions, betting on a price drop.
The Bitcoin long-to-short margin ratio at OKX shows longs outweighing shorts by 18 times. Historically, excessive confidence has pushed this ratio above 40 times, while levels below five times favoring longs are seen as bearish. The current ratio mirrors sentiment on Jan. 30, when Bitcoin traded above $100,000.
There are no signs of stress or bearishness in Bitcoin derivatives and margin markets, which is reassuring, especially after over $920 million in leveraged long futures contracts were liquidated in the seven days ending March 13.
Therefore, as recession risks ease, Bitcoin price is likely to reclaim the $90,000 level in the coming weeks, given the resilience in investor sentiment.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
