Bitcoin was trading down more than 3.0% from last Friday’s low of $23,000 B T c/USD is falling back under its 21DMA for the first time in almost two weeks Hotter than expected US core PCE inflation report That increases the risk the US Federal Reserve moves interest rates to higher levels for a longer period of time. As per the latest report, both MoM and YoY price pressures unexpectedly increased in January to 0.6% and 4.7% respectively.
This resulted in the US money market pricing in a 40% chance that the Fed will raise interest rates by at least 25 bps over its next four meetings. Before Friday’s data, the money market-underlying gap was 30% for at least four 25 bps rate hikes during the next four meetings. A month ago, markets had assigned the probability of a 100 bps rate hike at almost zero.
As a result, the US dollar is picking up, US yields are rising and US stocks come under fresh selling pressureA bearish combination for the risk-sensitive crypto asset class. Bitcoin Traders will continue to monitor the tone of upcoming key US data releases and remarks from Fed officials as they continue to assess the outlook for US monetary policy.
But it looks like fears of Fed tightening will continue to act as a near-term headwind for crypto. In fact, the apprehension of Fed tightening may have been the main reason behind this. of bitcoin Recent pullback from the previous monthly high low of $23,000. But as a return to the 50DMA in the $22,000 area is likely, and perhaps even a return to recent lows in the $21,400 area, bitcoin bulls can take solace in some of the recent options market development that could signal a continuation of the 2023 bull run. Recommend to stay. ,
Bullish Options Market Signals
Total open interest in bitcoin options (i.e. the total value of existing options contracts) across major crypto derivatives exchanges recently hit its highest level in nearly 10 months at $7.83 billion on Wednesday. Options are a more complex investment instrument, typically used by a more “sophisticated” investor base for hedging and making price direction bets.
Therefore, many view the increase in bitcoin options open interest as a sign that institutions are once again getting involved in the market. Institutional adoption has been a key narrative in the past bitcoin bull run, and that narrative could certainly take hold once again if Open Interest continues to rise to an all-time high of over $14 billion in 2021.
Elsewhere, Deribit’s Bitcoin Volatility Index (DVOL) remains near an all-time low. It was last at 53 on Friday, down from an earlier weekly high of 60. This is not much higher than the record high of 43 earlier that year. DVOL spikes during bearish times in the cryptocurrency market. Thus its continued stability is a reassuring sign.
Meanwhile, the delta skew of 25% of bitcoin options with expirations in 7, 30, 60, 90 and 180 days remained slightly above zero on Friday, indicating a still-moderately positive market bias. In fact, the 180-day 25% delta skew, last at 2.74, is just below the recent high (3.28 printed in January) and thus not below its highest level in more than a year.
The 25% delta option skew is a popular monitored proxy of the extent to which trading desks are charging investors more or less for the upside or downside protection through put and call options being sold. A put option gives an investor the right but not the obligation to sell an asset at a predetermined price, while a call option gives an investor the right but not the obligation to buy an asset at a predetermined price.
A 25% delta option skew above 0 suggests that desks are charging more for equivalent call options versus puts. This implies that demand for calls versus puts is higher, which can be interpreted as a bullish sign as investors are more eager to hedge (or bet) a security against a rise in prices.
Finally, the ratio of open interest puts versus calls on Deribit remained close to its record low of 0.45 on Friday. A record low was below 0.40 in late January.
Elsewhere, as discussed in recent articles, a A growing laundry list of on-chain and technical indicators All are suggesting that the bear market is over. So while bitcoin may not be able to maintain the momentum of its January rally, there are still plenty of reasons to think a return to 2022 lows is unlikely.
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