Key takeaways:
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BTC futures premium remains neutral, indicating traders were unfazed by the recent $6,630 price drop.
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The Bitcoin options skew and macroeconomic concerns suggest limited appetite for a breakout above $120,000.
Bitcoin (BTC) faced a sharp rejection after reaching a $124,089 all-time high on Thursday. The drop below $117,500 triggered $227 million in leveraged liquidations on bullish positions, though derivatives metrics were largely unaffected by the move.
Are traders overreacting to US inflation data, or is there something within the cryptocurrency market itself preventing a clean break above the $122,000 level?
The BTC futures annualized premium was barely affected by the $6,630 decline. The indicator currently stands at 9%, within the neutral 5%–10% range. This suggests the recent record high was not fueled by excessive leverage and that traders remained relatively calm despite the slide below $118,000. Still, the data hints at a lack of confidence in a rally toward $150,000.
Is higher inflation behind Bitcoin’s crash?
Some might argue that the 3.3% annual rise in the US Producer Price Index (PPI) for July pushed traders to be more risk-averse, as the inflation figure came in hotter than anticipated. The initial negative reaction reflected lower odds of multiple interest rate cuts. However, the S&P 500 eventually erased its intraday losses, indicating that Bitcoin’s sharp correction was likely driven by other factors.
According to the CME FedWatch tool, the implied probability of the Federal Reserve trimming rates to 3.75% or lower by January 2024 now stands at 61%, compared with 67% one week earlier. This signals reduced confidence in aggressive monetary easing, a backdrop that tends to weigh on risk assets such as Bitcoin.
Traders appear to have reacted negatively to US Treasury Secretary Scott Bessent’s remarks that the government has no plans to expand Bitcoin purchases for its Strategic Reserve.
In an interview with Fox Business, Bessent also dismissed the idea of reallocating proceeds from a potential reevaluation of Treasury gold into Bitcoin. That message ran counter to market expectations, since the Executive Order signed by US President Donald Trump in March specifically cited “budget-neutral strategies for acquiring additional Bitcoin.”
Bitcoin options market shows resilience
To understand if Bitcoin traders anticipate further downside, one should assess the BTC options delta skew. A higher cost for put (sell) options usually indicates a bearish market, causing the indicator to move above the neutral 6% threshold.
At present, the Bitcoin options skew stands at 3%, suggesting a balanced risk outlook consistent with a healthy market. Importantly, traders have shown resilience even as Bitcoin repeatedly failed to hold above $120,000. While this does not imply confidence in a sustained rally, it does show little fear of a retest of the $110,000 support level.
Related: Bitcoin briefly flips Google market cap as investors eye rally above $124K
Since US equities erased most of their losses following the latest inflation release, it is likely that Bitcoin traders used the move toward all-time highs to secure profits. The broader concern seems to stem from macroeconomic conditions, particularly as US government debt surpassed the $37 trillion milestone.
Bitcoin remains well-positioned for potential gains in 2025, supported by central banks expanding their balance sheets to offset budget imbalances. Still, judging by muted activity in derivatives markets, enthusiasm for a decisive breakout above $120,000 appears limited.
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.