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After the Federal Reserve reiterated its commitment to reducing the high inflation in the United States in its remarks, BTC and stocks fell.
Bitcoin (BTC) rose from $21,120 to $21,870 in less than two hours on August 26, thanks to a $750 pump. However, when U.S. Federal Reserve Chair Jerome Powell's remarks reaffirmed the bank's resolve to control inflation by tightening the economy, the movement was entirely reversed. After Powell's remarks, the price of bitcoin fell as low as $20,700.
Powell stated at Jackson Hole that "the historical evidence strongly advises against hasty policy easing." The U.S. stock market indices reacted poorly after those statements, with the S&P 500 losing 2.2% in an hour.
The amiable “Bart candle,” which refers to Bart Simpson’s head shape and describes the up-and-down price movement of BTC, appeared on the Bitcoin chart. Aside from these erratic technical analysis indicators, other indicators indicated Bitcon’s overall neutral-to-bearish sentiment.
Investor mood is being affected by the recent bad newsflow surrounding cryptocurrencies. The U.S. Federal Deposit Insurance Corporation (FDIC) addressed cease and desist letters to five businesses, including FTX US, on August 24 for allegedly making fraudulent claims about deposit insurance relating to cryptocurrencies.
Anti-Money Laundering officials inspected the offices of the Indian cryptocurrency exchange CoinSwitch on August 25 due to alleged violations of foreign exchange regulations. CoinSwitch effectively acquired funding from Coinbase Ventures, Andreessen Horowitz, Sequoia, and Tiger Global before it was launched in India in 2020.
Last but not least, on August 26, the U.S. Securities and Exchange Commission postponed a decision about an exchange-traded fund (ETF) for the Bitcoin spot proposed by major financial firm VanEck. Even if the chances of approval were slim, it strengthened the regulator’s anti-crypto stance.
Consequently, crypto investors are left with lingering uncertainty despite the ostensibly advantageous inflationary condition, which should benefit supply-capped assets. Due to this, it is crucial to examine cryptocurrency derivatives to determine whether investors have been overpricing the likelihood of a fall.
Due to the price disparity between quarterly futures and spot markets, retail traders typically steer clear of them. Nevertheless, because they eliminate the constant funding rate variation that frequently occurs in a contract, they are the favorite tools of expert traders.
To cover costs and related risks, the indicator should trade at a 4% to 8% annualized premium in strong markets. But given that the premium on Bitcoin futures has consistently been below 1.8%, that has not been the case. This information illustrates the professional traders’ reluctance to increase leveraged long (bull) holdings.
One must also evaluate the Bitcoin options markets to eliminate externalities unique to the futures instrument. For instance, when market makers and arbitrage desks are overcharging for upside or downside protection, the 25% delta skew is a telltale sign.
Options traders increase their likelihood of a price drop during bad markets, pushing the skew indicator above 12%. Since August 22, the 30-day delta skew has fluctuated close to the neutral-to-bearish threshold, indicating options traders are less likely to provide downside protection.
These two derivatives indicators imply that the August 26 Bitcoin price collapse may have tracked historical stock market behavior, but cryptocurrency traders surely did not anticipate a price rise.
The sentiment deteriorated following Powell’s remarks, and the derivatives data further reflect deteriorating market circumstances, so there is little opportunity for bullish interpretations.