The upward momentum of Bitcoin’s (BTC) price has slowed down following a rally that brought it closer to its all-time high on October 29. Nevertheless, the derivatives market still reflects a sense of optimism among traders regarding a potential price rebound.
An examination of the Bitcoin futures and options markets indicates that traders are holding their positions without resorting to excessive leverage, which is vital for a sustainable advance toward new record highs. However, it is crucial to comprehend the reasons behind Bitcoin’s price drop to below $69,000 on November 1.
When traders anticipate a decline in Bitcoin’s price, the 25% delta skew metric usually rises above 7%. This trend indicates that put (sell) options are being valued higher due to increased demand.
Despite the recent pullback in Bitcoin’s price, the derivatives landscape appears stable. To gauge whether trader sentiment has diminished following the recent decline, one can analyze the funding rate of perpetual contracts (inverse swaps). A neutral funding rate—characterized by no cost for bullish leverage—suggests a lack of strong conviction among traders, while rates above 2.1% per month indicate excessive optimism.
As of November 1, there was no notable change in leverage demand, with the funding rate recorded at 0.01% every 8 hours, translating to roughly 0.9% per month, which is generally interpreted as neutral. This absence of leverage as a major factor in driving Bitcoin’s increase from $67,000 to $73,500 between October 27 and October 29 suggests a healthy market environment. Overall, the Bitcoin derivatives market appears to support a sustained bullish trend, potentially paving the way for further advancements.
Related: Various elements influence investor sentiment.
From a trading perspective, the need to secure profits ahead of significant political and economic events can be closely associated with Bitcoin’s recovery to $71,000 on November 1. This movement correlates with trends in the S&P 500 index, indicating that both markets are responding to similar macroeconomic factors.
In the short term, during periods of recession risk, traders often seek refuge in cash positions and Treasury bills. This behavior can help clarify the recent declines in both the stock market and Bitcoin, particularly following Intel’s report of a 6% drop in quarterly revenues year-over-year.
Recent earnings disclosures from major tech firms like Microsoft and Meta have highlighted increased investments in AI, leading to diminished expectations for earnings growth. This news coincided with a significant 44% decline in Super Micro Computer (SMCI) shares over a three-day period after an unexpected auditor resignation from EY.
The market sentiment shifted on November 1 when the US Bureau of Labor Statistics announced a payroll growth of just 12,000 for October, far below the anticipated 100,000. Furthermore, US wages rose by 0.4% from the previous month, raising inflation concerns. Despite this, market analysts using the CME FedWatch tool are predicting a 0.25% interest rate cut by the US Federal Reserve on November 7.
Upcoming events, such as the US presidential elections on November 5 and the Federal Open Market Committee (FOMC) meeting, are worth monitoring. Political initiatives aimed at stimulating the economy often lead to a depreciation of the US dollar, which may, in turn, elevate Bitcoin’s price in the medium term.
This article is intended for informational purposes only and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views or opinions of Cointelegraph.