Bitcoin (BTC) futures open interest has just had its biggest daily decline in the past five months. Yesterday’s 11% drop resulted in more sell-offs than it did on May 9, when BTC fell 12.5% to $ 8,600.
Open interest in Bitcoin futures in USD. Source: Skew
Skew data shows that total open positions decreased by $ 653 million, reaching $ 4 billion on September 3. This number includes perpetuals (reverse swaps) and futures with a fixed term on OKEx, CME, Binance and the remaining derivatives exchanges.
Yesterday’s move marked the biggest daily decline since the resounding $ 1 billion sell-off on March 13, which saw the price of Bitcoin drop 50%. On the same day, the Dow Jones Industrial Average’s biggest sell-off since 1987 was a 10% decline.
That sharp correction may not have been a negative record for the equity markets, but it was Nasdaq Composite fell 5%, led by Apple (AAPL -8%), Salesforce (CRM -7.8%) and Microsoft (MSF -6.2%).
Apple shares (AAPL) fell 8% on September 3, causing its market cap to drop by $ 180 billion. This was the biggest daily loss for a single company. By comparison, Bitcoin’s market capitalization is currently $ 194 billion.
The iPhone maker is currently valued at just over $ 2 trillion. Such an impressive number could buy the entire altcoin market and pay a 1,300% premium on the current altcoin market cap of $ 140 billion.
The futures premium temporarily disappeared
The futures markets tend to operate with a low premium compared to regular spot exchanges. This is not an isolated case in the cryptocurrency markets, but rather an effect of derivatives. To postpone the financial execution of a trade, sellers often ask for more money.
This futures contract premium indicator is known as the base and is typically between 5% and 15% on an annual basis. If the premium is positive, the market is characterized by the existence of contango. On the flip side, a zero to negative premium for futures contracts is a bit unusual and indicates a bearish sentiment.
Analyzed basis of 3-month BTC futures. Source: Skew
The graph above shows how significant yesterday’s brief drop below $ 10,000 was in the futures markets. Such a negative premium situation is known as “backwardation” and was last seen four months ago, on May 10th to be precise. At that time, Bitcoin (BTC) recovered rapidly over the next three days and pushed the base indicator back into positive territory.
The current annualized base of 4% cannot be considered bearish. although it is certainly not bullish like the 10% level three days ago.
The short-term options returned to a declining level
Bitcoin options markets are also experiencing significant price volatility. Like the futures market, the latest BTC crash caused great risk phobia movements. Market makers often increase spreads during periods of volatility. So what happens the next day can tell us more.
The indicator for the 25% slope of the delta compares similar options such as call (call) and put (put) side by side. The indicator becomes negative if the premium for put options is higher than for call options with a similar risk. A negative slope results in higher downside protection costs, which indicates optimism.
The opposite occurs when market makers are bearish, to bring the indicator for the slope of the delta by 25% into positive territory.
25% slope of the delta of the BTC options. Source: Skew
Although the numbers vary depending on how these options expire, the short-term ones tend to be more relevant. Bitcoin’s (BTC) sharp decline yesterday caused the one-month options delta slope to climb 25% above 10%. As the graph above shows, ranges from -10% (slightly bullish) to + 10% (slightly bearish) are common.
It would be premature to conclude that the options markets are showing bearish sentiment, especially when it comes to long-term options. However, large traders and market makers seem risk averse right now, at least when it comes to prices for downside protection options.
Bitcoin derivatives are still healthy
Despite the decline in open interest in Bitcoin futures The total fictional value of $ 4 billion is still higher than it was two or three months ago. The same applies to the current premium (base) of 4% for futures, which is far from declining backwardation.
Be aware that the cryptocurrency markets are extremely volatile and negative price fluctuations also affect investors. No further testing is required after the two largest BTC futures settlement events occurred on the exact same day that the historic stock market crash occurred.
These events show that even uncorrelated markets, regardless of their different drivers, can hit peaks and troughs simultaneously. The current global macroeconomic scenario appears to be the dominant force for risk assets, including Bitcoin.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and business move is associated with risks. You must do your own research when making a decision.