Bitcoin traded below its mining cost basis in June, DeFi experienced a 33% decline in TVL, and mid-month weekly BTC options peaked to their highest on record.
The blockchain space is seeing some areas of strength despite the perceived downturn in the market. The perpetual futures funding rates for Bitcoin (BTC) and Ether (ETH) have flipped back to positive on major exchanges, which shows bullish sentiment among derivatives traders. In addition, Bitcoin started trading below its cost basis, which has marked previous areas of market bottoms. In contrast, June saw decentralized finance (DeFi) experience a 33% decrease in total value locked and crypto stocks provide a -42.7% average month-over-month return.
There is an ongoing battle between bullish and bearish sentiments in different areas of the market. To help cryptocurrency traders maneuver through the battlefield, Cointelegraph Research recently launched its monthly “Investor Insights Report.” In the report, the research team breaks down the past month’s top market-moving events and the most critical data across the various sectors of the industry. The researchers provide expert analysis and insights that can benefit serious blockchain market participants.
Derivatives may provide a key indicator of changing sentiments
Leading up to June, there had been a strong bearish sentiment in the market. One indicator of bearish and bullish sentiment is the volatility skew of a market. The larger the skew range, the more volatile, while tighter ranges suggest less volatility — which implies more confidence in the market. On June 18, the Bitcoin options 25-delta skew peaked at 36%, the highest ever on record. Since then, some optimism has returned, sending the skew down to 17%. This signals a strong belief that the crypto market will rebound over the next few months.
Premiums on long calls on Bitcoin and Ether indicate that traders are optimistic about the end of the year. However, solvency issues and the risk of contagion are still present in the market and the minds of investors and regulators.
In sideways markets, traders can use strangles to generate returns if Bitcoin stays range-bound. Strangles involve selling puts and calls at different strike prices. The idea of a strangle is like the name implies: placing a put (an option to sell) and a call (an option to buy) below and above the current spot price. For example, if Bitcoin is at $20,000, first sell a put at $15,000 on the downside and a call at $30,000 on the upside. If they expire after a month, the premiums result in the gains minus the transaction fees.
Currently, the options skew has a steep slope, with an implied volatility differential of up to 10% between the $17,000–$24,000 strike prices on Deribit and the Chicago Mercantile Exchange. This indicates a good setup for a risk reversal involving a short put at $17,000 and a long call at $24,000.
Is bullish sentiment starting to push bears back?
Bitcoin’s net unrealized loss has hit a three-year low, highlighting that its current market value is nearly 17% lower than that of its aggregate cost basis. Historically, global bottoms have formed when losses hit over 25%. The downsloping moving averages and the relative strength index in the oversold zone indicate that bears are in control.
However, for the first time since March 2020, Bitcoin traded below its mining cost basis, a level that has historically marked global capitulations and bottoms in the price of Bitcoin. The net unrealized profit/loss indicator is more evidence that the bulls may potentially be overtaking the bears.
From derivatives to the NFT sector
The Investor Insights Report covers various other topics such as security tokens, DeFi, blockchain gaming, cryptocurrency mining, blockchain-related stocks, regulation and venture capital investments. The subject matter experts stay up-to-date on all the latest news and trends to cut through the weeds and provide essential insights into the blockchain industry.
Each section of the report covers important elements impacting the topic. Subject matter experts cover the most important happenings that will have a significant impact, and the information is presented in a digestible format that serious participants in the crypto marketplace can use to get an overview, highlights and a forecast for what may be on the horizon. The newsletter is now available for subscription and features complete charts and detailed analyses.
The Cointelegraph Research team
Cointelegraph’s Research department comprises some of the best talents in the blockchain industry. Bringing together academic rigor and filtered through practical, hard-won experience, the researchers on the team are committed to bringing the most accurate, insightful content available on the market.
Demelza Hays, Ph.D., is the director of research at Cointelegraph. Hays has compiled a team of subject matter experts from across the fields of finance, economics and technology to bring to the market the premier source for industry reports and insightful analysis. The team utilizes APIs from a variety of sources in order to provide accurate, useful information and analysis.
With decades of combined experience in traditional finance, business, engineering, technology and research, the Cointelegraph Research team is perfectly positioned to put their combined talents to proper use with the Investor Insights Report.
Disclaimer: The opinions expressed in the article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.