Bitcoin's Price Plummeted Over 24% When This Metric Turned Negative Will It Occur Again

Bitcoin derivatives metrics shift as BTC price drops below $59,000 today are lower prices ahead.

Source: cryptonomist.ch

Bitcoin fell by 5.3% between October 9 and October 10, hitting a three week low of $58,900. This market correction followed the release of higher than expected consumer inflation data in the United States, raising concerns that the Federal Reserve may have less incentive to cut interest rates soon. The decline in Bitcoin's price reflects investors' worries about an increased likelihood of recession. The US Bureau of Labor Statistics reported a 0.2% rise in the Consumer Price Index (CPI) for September compared to the previous month, which sparked fears of 'stagflation' among investors, according to Yahoo News. In this scenario, prices rise even as economic growth stagnates, undermining the central bank's goal of stimulating growth while managing inflation.

Additionally, US jobless claims reached a 14 month high, as data released on October 10 indicated an unexpected increase in initial unemployment benefit filings, which totaled a seasonally adjusted 258,000 by October 5. While some of this rise is attributed to a labor strike at Boeing, the overall economic impact remains a significant concern for policymakers, as reported by CNBC. Although there’s no certainty that Bitcoin’s price will suffer if the Federal Reserve adopts a tighter monetary policy, investors are anxious that an overheating economy might trigger a stock market correction. This sentiment is exacerbated by the current high correlation of 88% between the S&P 500 and Bitcoin, dampening trader morale.

Given these conditions, it's reasonable to expect Bitcoin traders to grow less optimistic about short term price movements, particularly after two consecutive days of outflows from US spot Bitcoin ETFs. Data from Farside Investors showed net outflows of $59 million between October 8 and October 9, reversing the trend seen in the previous two trading days. The bearish momentum for Bitcoin intensified after reports that market maker Cumberland DRW was sued by the US Securities and Exchange Commission for operating as an unregistered dealer in cryptocurrency transactions. The regulator stated that the Chicago based company profited from crypto asset sales that were comparable to commodity sales.

Bitcoin Derivatives Indicate Short Term Selling Pressure

Regardless of the court's outcome, traders often seek protection during times of fear and uncertainty. When Bitcoin dipped below $59,000, its key derivatives metrics indicated weakness, pointing to a decreased demand for leveraged buying (long positions). In neutral markets, the Bitcoin futures premium reflecting the difference between monthly contracts and the spot price should typically show a 5% 10% annualized premium (basis) to account for the longer settlement period. However, on October 10, the Bitcoin basis rate fell below the 5% neutral threshold for the first time in over two months. Notably, the last time this indicator turned bearish on August 5, Bitcoin plummeted 24.6% in just three days, dropping to $49,268. This recent change in BTC futures metrics signals a significant shift in trader sentiment.

To fully understand the implications of Bitcoin's recent price movements, traders should also look at the options market. The 25% delta skew indicates when arbitrage desks and market makers are overpricing upside or downside protection. A skew above 7% typically suggests that traders expect a price drop, while a negative skew of  7% indicates excitement. Currently, the Bitcoin options 25% skew remains close to zero, suggesting that whales and market makers have not altered their short term risk reward perceptions. Therefore, the sudden decline in BTC basis could be temporary, hinting that a few large entities might have unexpectedly closed their leveraged long positions. Ultimately, derivatives traders do not appear to be anticipating an imminent decline in Bitcoin's price.

Disclaimer: FameEX makes no representations on the accuracy or suitability of any official statements made by the exchange regarding the data in this area or any related financial advice.