Bitcoin’s (BTC) price momentum has slowed down following the rally on October 29 that brought it closer to its all-time high. Nevertheless, the derivatives market still reflects traders’ optimism regarding a potential price rebound.
An analysis of Bitcoin’s futures and options markets indicates that traders are holding their positions without resorting to excessive leverage. This restraint is vital for fostering a sustainable drive toward new record prices. However, it is important to understand the factors that led to Bitcoin’s price drop below $69,000 on November 1.
When there is a heightened expectation of a decline in Bitcoin’s price, the 25% delta skew metric tends to rise above 7%. This indicates that put (sell) options are being priced higher due to increased demand.
Despite the recent price pullback, Bitcoin derivatives appear stable. To determine whether traders’ sentiment has weakened after the recent decline, it’s beneficial to examine the funding rates of perpetual contracts (inverse swaps). A neutral funding rate, which incurs no costs for bullish leverage, suggests a lack of strong conviction among traders, while rates above 2.1% per month indicate excessive optimism.
On November 1, leverage demand showed no significant change, with the funding rate at just 0.01% every eight hours, translating to about 0.9% per month—generally considered neutral. This suggests that leverage was not a major factor driving Bitcoin’s increase from $67,000 to $73,500 between October 27 and October 29, indicating a healthier market trend. Overall, the Bitcoin derivatives markets support a continuing bull market, potentially paving the way for further gains.
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Various factors influence investor sentiment
From a trading perspective, taking profits ahead of major political and economic events is prudent. Bitcoin’s recovery to $71,000 on November 1 has shown a close correlation with movements in the S&P 500 index, implying that both markets are responding to similar macroeconomic signals.
In the short term, during periods of recession risk, traders often seek refuge in cash positions and Treasury bills. This trend helps explain the recent declines noted in both the stock market and Bitcoin following Intel’s report of a 6% quarterly revenue decrease year-over-year.
Recent earnings reports from tech giants, including Microsoft and Meta, have revealed a surge in AI investments but have also tempered expectations for earnings growth. This news followed a dramatic 44% drop in Super Micro Computer (SMCI) shares over three days after an unexpected resignation of their auditor, EY.
On November 1, market sentiment shifted when the US Bureau of Labor Statistics reported a payroll growth of just 12,000 for October, significantly below the expected 100,000. Furthermore, US wages increased by 0.4% from the previous month, raising inflation concerns. Despite this, market analysts, as indicated by the CME FedWatch tool, are speculating on a 0.25% interest rate cut by the US Federal Reserve on November 7.
Looking ahead, the upcoming US presidential elections on November 5 and the Federal Open Market Committee (FOMC) meeting are crucial events. Political initiatives aimed at stimulating the economy often lead to a depreciation of the US dollar, which could enhance 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 opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.