Bitcoin (BTC) experienced a 3.3% drop on May 14, testing the $61,000 support level before quickly bouncing back. This correction marked the second failed attempt within a week to surpass $63,500. Despite this price action, Bitcoin bulls remain confident, as indicated by BTC derivatives metrics.
Although the current trend for Bitcoin’s price appears bearish, some analysts believe there is still a good chance for it to reach prices above $70,000.
Trader and analyst Cryptotoad noted the impressive resilience of the $60,500 support level. However, he asserts that a higher high, specifically a daily close above $67,000, is needed to break the current bearish pattern. While this analysis does not rule out a potential price recovery, it suggests that prices below $57,000 may be seen in May.
The disappointment among investors on May 14 can be attributed in part to the United States Producer Price Index (PPI) data for April, which showed a 0.5% month-over-month increase. The market interpreted this wholesale inflationary pressure as a sign that the U.S. Federal Reserve will maintain higher interest rates for longer, which is unfavorable for risk-on assets like cryptocurrencies and growth stocks.
Some argue that inflation is actually positive for Bitcoin’s performance due to its strict monetary policy. However, during times of fear and uncertainty, investors tend to seek cash and short-term bonds. Yields on two-year U.S. Treasury notes dropped from 5.03% on May 1 to 4.84% on May 14, indicating that traders are willing to pay a higher price for these fixed-income instruments.
While it may seem counterintuitive to seek protection from an economic recession in U.S. Treasurys, these assets are considered the safest as they are directly backed by the government. This is unlike money market funds managed by financial institutions. Therefore, despite higher-than-anticipated inflation data, negative sentiment for Bitcoin was not reflected in derivatives data.
To assess whether professional traders have become more pessimistic about Bitcoin following its drop to $61,000, one can analyze BTC monthly futures contracts. In neutral markets, these contracts typically trade at a 5%-10% premium relative to BTC spot markets to account for the longer settlement period.
Data indicates that the annualized BTC futures premium remained largely unaffected by the worsening macroeconomic conditions and Bitcoin’s repeated failure to sustain prices above $63,500. The current 8% premium falls within the range of a neutral market, allowing for potential negative surprises.
Furthermore, one can examine the Bitcoin options market to determine if the demand for hedges increased after the recent price correction. Typically, if market makers and whales expect a Bitcoin price drop, the BTC options skew metric will exceed 7%, while periods of enthusiasm often show a skew below -7%.
The BTC options 25% delta skew has remained within a neutral range since May 8, indicating that market participants have priced call (buy) and put (sell) instruments similarly. According to this metric, the weakness in Bitcoin’s price did not impact how professional traders assess risks for downside swings.
Bitcoin bears have displayed strength, with the last daily close above $65,000 occurring three weeks ago on April 23. However, the lack of momentum seems to have little impact on the bullish sentiment, which is primarily driven by investors temporarily shifting towards cash positions. If the inflationary issue in the U.S. persists, market participants may be forced to look for alternatives, keeping Bitcoin’s path to $70,000 in 2024 within reach.
Please note that this article does not provide investment advice or recommendations. It is important for readers to conduct their own research and assessment of risks before making any investment or trading decisions.