Despite Bitcoin’s Rebound… Derivatives Market Still Flashing Warning Signals

Doohyun Hwang

Summary

Bitcoin’s price rebounded, but futures market investor sentiment was reported to have frozen at its worst level in a year.
Over the past five trading days, about $1.8 billion in forced liquidations of long positions occurred, with warnings that even large hedge fund and market maker positions may be at risk.
As Bitcoin open interest (OI), the basis, and the options market skew indicator all deteriorated, upside expectations were reported to have vanished and fear sentiment to have intensified.

Forecast Trend Report by Period

Bitcoin (BTC) has managed to bounce off a short-term low, but analysts say warning lights are still flashing in the derivatives market. While spot prices have risen, investor sentiment in the futures market has frozen to its worst level in a year.

According to Cointelegraph on the 6th (local time), even as Bitcoin attempts to regain the $70,000 level, leveraged demand betting on further upside has yet to return.

Instead, over the past five trading days of continued declines, roughly $1.8 billion worth of positions held by investors who had bet on a bull move (long positions) were forcibly liquidated. Some in the market warn that even positions held by large hedge funds and market makers (MMs) may be at risk.

This correction is seen as different in nature from the “$4.6 billion one-day crash” that occurred in October last year. Whereas that episode was a temporary shock, this downturn is described as a market that has been gradually sapped as selling pressure has accumulated for three consecutive weeks.

Open interest (OI) in Bitcoin across major exchanges stood at about 527,850 BTC, little changed from the previous week. However, due to falling prices, the dollar value plunged over the week to $35.8 billion from $44.3 billion. In other words, it suggests investors are holding on with losses without being able to unwind their positions.

The basis—reflecting the gap between spot and futures prices—also slumped to around 2% on an annualized basis, the lowest level in more than a year. Typically in a bull market, futures trade above spot on optimism about future prices; the near disappearance of this premium indicates upside expectations have evaporated.

In the options market, fear sentiment has hit an extreme. The “skew” indicator, which reflects the cost of put options (downside bets) relative to call options (upside bets), surged to 20% on the 5th. This means investors are focused on hedging against declines even if it costs more—levels typically seen only during past bouts of large-scale panic trading.

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