On August 12, Bitcoin experienced a sharp move, initially falling 3.2% to $57,844 in less than an hour before recovering 5% to reach $60,700 within the next thirty minutes. This sudden price movement reflected the uncertainty in the macroeconomic environment, especially after comments from a US Federal Reserve governor over the weekend. These comments also contributed to a surge in the price of gold, which rose to $2,458, just 1% below its all-time high.
The possibility of an economic recession poses the biggest risk to a Bitcoin price crash. Traders are now questioning whether Bitcoin can retest its August 5 low of $49,248, especially as interest in leveraged BTC longs wanes and the risk of a correction increases in global equity markets.
JPMorgan economists have raised the probability of a U.S. recession in 2024 to 35%, up from a previous estimate of 25%. The revision, Bloomberg reports, is due to weak labor market conditions and the Federal Reserve's restrictive policy stance. On August 10, Fed Governor Michelle Bowman said that inflation risks persist and the labor market remains weak, reducing the likelihood of a September rate cut. Investors are now eagerly awaiting the U.S. Producer Price Index on August 13 and the Consumer Price Index on August 14, which are expected to provide clues on the Fed's next moves.
To better understand the recent price volatility of Bitcoin, it is important to analyze the Bitcoin futures market. Monthly BTC futures contracts have inherent costs due to their long settlement periods, with sellers typically demanding an annual premium of 5% to 10% to compensate.
The annual Bitcoin futures premium fell to 6% on August 12, down from 9% on August 11 as Bitcoin retested the $58,000 support level. While this level remains in neutral territory, it suggests low leverage demand from buyers—a trend that has persisted since July 30, the last time the premium exceeded 10%.
To assess whether this sentiment shift is isolated to the futures market, it is useful to look at the Bitcoin options market. The delta skew indicator, which indicates market sentiment, has remained stable over the past week, indicating no significant imbalance in put and call option prices. Despite the recent price drop, there are no signs of stress and the market remains neutral.
One explanation for this neutral sentiment could be the reduction of excessive leverage in the market. Recent volatility may have reduced the need for leverage, with both bulls and bears facing a combined $634 million in BTC futures liquidations. However, this does not fully explain why Bitcoin futures open interest remains at $28.8 billion.
The most likely reason for the current sentiment is the rise of “cash and carry” strategies, where traders engage in fixed income operations to capture futures premiums, making the direction of the market irrelevant. This suggests that Bitcoin derivatives are becoming less dependent on retail trading, with CME emerging as the leader with a 29% market share. Even with the ongoing price volatility, there are no clear signs that traders are turning bearish or that excessive liquidation could lead to a significant drop to $52,000.
#MarketDownturn #Write2Win #riskofmeme #tradecoinhtx
