Bitcoin traded below its mining cost base in June, DeFi saw a 33% drop in TVL, and mid-month weekly BTC options hit an all-time high.
The blockchain space is seeing some strong points despite the perceived market downturn. Perpetual funding rates for Bitcoin (BTC) and Ether (ETH) have turned positive again on major exchanges, showing bullish sentiment among derivatives traders. In addition, Bitcoin began trading below its base price, marking previous market declines. In contrast, decentralized finance (DeFi) saw a 33% drop in total value locked in June, and crypto stocks returned an average of -42.7% month-over-month.
There is an ongoing battle between bullish and bearish sentiments in various areas of the market. To help cryptocurrency traders navigate the battlefield, Cointelegraph Research recently launched its monthly “Investor Insights Report”. In the report, the research team breaks down the most notable market events of the past month and the most critical data across the various industry sectors. The researchers provide expert analysis and insights that can benefit serious players in the blockchain market.
Derivatives can provide a key indicator of changing sentiment
Prior to June, there had been a strong bearish sentiment in the market. A bearish and bullish sentiment indicator is a market’s volatility bias. The wider the range of asymmetry, the more volatile it is, while narrower ranges indicate less volatility, meaning greater confidence in the market. On June 18, the 25-delta bias in Bitcoin options peaked at 36%, the highest ever. Since then, some optimism has returned, causing the bias to drop to 17%. This signals a strong belief that the cryptocurrency market will bounce back over the next few months.
Long call premiums on Bitcoin and Ether indicate that traders are optimistic for the end of the year. However, solvency problems and the risk of contagion are still present in the market and with investors and regulators.
In sideways markets, traders can use chokes to generate returns if Bitcoin remains limited. Chokes involve writing put and call options at different strike prices. The idea of a choke is, as the name suggests: to place a put (a put option) and a call (a call option) below and above the current spot price. For example, if Bitcoin is at $20,000, first sell a $15,000 put down and a $30,000 call up. If they expire after one month, the bonuses result in the winnings minus transaction fees.
Currently, the options skew is steep, with an implied volatility difference of up to 10% between strike prices of $17,000 to $24,000 on Deribit and the Chicago Mercantile Exchange. This indicates a good setup for a risk reversal involving a short sell at $17,000 and a long call at $24,000.
Is the bullish sentiment starting to fend off the bears?
Bitcoin’s net unrealized loss hit a three-year low, underscoring that its current market cap is nearly 17% below its total cost base. Historically, global lows have formed when losses have reached more than 25%. The falling moving averages and the relative strength index in the oversold zone indicate that the bears are under control.
But for the first time since March 2020, Bitcoin traded below its mining cost base, a level that has historically marked global capitulations and low prices for Bitcoin. The net unrealized profit/loss indicator is further evidence that the bulls can potentially overtake 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. Subject matter experts stay up to date with 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 that influence the topic. Subject matter experts cover the key events that will have a significant impact and the information is presented in a digestible format that serious cryptocurrency market participants can use to gain insights, highlights and a prediction of what may be on the horizon. The newsletter is now available for subscription and offers comprehensive charts and detailed analysis.