Originally published on: August 01, 2024
The price of Bitcoin (BTC) took a significant hit, dropping 5.5% between July 31 and Aug. 1 to reach $62,498, its lowest level in over two weeks. The decline has been attributed to diminished expectations of interest rate cuts in the United States and the movement of 47,000 BTC from the defunct exchange Mt. Gox. While traders are cautious about the potential retest of the $57,000 support level, derivatives markets are showing resilience and no signs of stress.
The decision by the United States Federal Open Market Committee on July 31 to leave interest rates unchanged at 5.25% contributed to the market sentiment. Fed Chair Jerome Powell’s comments indicated a cautious approach to future rate cuts based on strong signs of gross domestic product expansion and confidence in inflation reduction. As a result, investors flocked to US Treasurys, pushing the five-year yield to a six-month low amidst escalating tensions in the Middle East.
The transfer of nearly $3 billion worth of Bitcoin by Mt. Gox on July 30 raised concerns about a potential sell-off as long-awaited payouts were distributed to the exchanges Kraken and Bitstamp. This movement fueled fears among investors, coinciding with the drop in Bitcoin price.
Despite the market uncertainty, Bitcoin derivatives metrics tell a different story. The BTC monthly futures contract prices, which typically maintain a premium of 5% to 10% relative to spot exchanges, saw a decline to 7% on Aug. 1, suggesting a slight shift in sentiment. However, the 25% delta skew for Bitcoin options remained neutral at -5%, indicating balanced pricing between call and put options and no significant impact on sentiment.
Overall, despite the recent price correction, professional traders do not anticipate further declines in the near future based on BTC derivatives metrics. As the market continues to evolve, staying informed and analyzing these indicators is crucial for making informed investment decisions.