Bulls and bears are anxious, options data suggests BTC will still adjust in the short term

Cryptocurrencies entered consolidation mode on Thursday as yesterday’s CPI-driven rally faded. Bitcoin was trading mainly around the $61,000 support in early trade on Thursday before slipping towards the $65,000 support in the afternoon. At the time of writing, BTC is trading at $65,215, down 1.55% in 24 hours.

While yesterday’s rally was BTC’s strongest performance since late March, weak U.S. economic data has increased the likelihood that the Federal Reserve will cut interest rates in September, a shift that could also prompt the Bank of England and the European Central Bank to cut interest rates as early as possible. Rate cut in June. But hawkish comments from three Fed officials -- Cleveland Fed President Loretta Mester, New York Fed President John Williams and Richmond Fed President Thomas Barkin -- who spoke on Thursday caused the major indexes to close lower.

At the close, both the S&P and Nasdaq were in the red, down 0.15% and 0.25% respectively, while the Dow ended flat.

In the crypto market, the performance of the altcoin market was mixed, with the vast majority of the top 200 coins by market capitalization posting losses on Thursday. Fantom (FTM) gained 12%, Core (CORE) gained 11.9%, and Jito (JTO) gained 11.7%. Newly listed community tokens Notcoin (NOT) fell 47%, Nervos Network (CKB) fell 8.7% and Stacks (STX) fell 8.4%.

The current overall market value of cryptocurrencies is $2.35 trillion, and Bitcoin’s dominance rate is 54.6%.

Is the U.S. economy strong?

While Wednesday’s strong rebound in “soft” inflation excited crypto traders, market analyst Bloodgood warned against jumping to any conclusions as the CPI-driven rebound “will never last.”

He said: “Since the beginning of May, Bitcoin has been fluctuating between the weekly support level of $60,000 and the daily resistance level of $64,000.” “Looking at the daily chart, we can see A higher low has been formed, and at the time of writing, Bitcoin is trading just below daily resistance."

##Bloodgood believes: "This daily line. The level has been tested multiple times so from a technical analysis perspective this leads me to believe that it will break out sooner or later, from a more macro perspective we can say that this rise is due to the CPI news and we know this The rise never lasts, so don’t jump to any conclusions now and wait for levels to be breached and confirmed before taking a trade.”

Options traders expect Bitcoin to still correct in the short term

CF Benchmarks analysis of Chicago Mercantile Exchange (CME) Bitcoin futures options shows that despite yesterday’s weak U.S. CPI inflation report, investors are still prepared to pay a premium for short-term downside protection.

CF Benchmark analysts said that despite Bitcoin crossing the $66,000 mark yesterday after weak inflation, "implied volatility remains higher for out-of-the-money puts compared to call options."

They added that derivatives traders were willing to pay higher premiums for out-of-the-money (OTM) put options, which is a bearish indicator of the short-term market. The increase in OTM put option implied volatility (IV) suggests traders are essentially hedging against a potential decline in Bitcoin’s value.

IV is a measure used in the options market that represents the market's prediction of possible future movements or price fluctuations in an asset or security.

Contrary to the short-term outlook, analysts noted that the volatility curve between longer-term puts and calls is “flatter,” while calls are slightly tilted. Analysts said: “This indicates that investors are more optimistic about Bitcoin’s long-term prospects, and if deflation expectations begin to accelerate after a favorable CPI report, it will be worth watching whether the call option bias will increase.”

The relative stability in long-dated puts and calls may also indicate increased institutional participation "as these investors are less prone to extreme swings in sentiment," CF Benchmark analysis found.

Bitcoin Derivatives Flat

The long-short ratio of top traders integrates positions in spot, perpetual and quarterly futures contracts, and observation can be used to infer how bullish or bearish these traders are.

Coinglass data shows that on OKX, the long-to-short ratio currently stands at 0.96, indicating that longs and shorts hold roughly equal positions. However, this stance is less optimistic compared to May 14, when the indicator stood at 1.25 in favor of the bulls. Likewise, Binance’s top traders are now less bullish compared to May 14, with the long-short ratio falling from 1.31 to 1.14.

To gauge retail trader interest, one should look at perpetual futures, also known as inverse swaps. These contracts contain embedded rates that are recalculated every eight hours to compensate for imbalances in leverage demand. Essentially, negative interest rates indicate that shorts (sellers) tend to use leverage.

Data shows that Bitcoin’s funding rate has remained below 0.01% over the past month, indicating a balance of demand between bulls and bears. Even the recent rally above $66,000 failed to instill confidence among retail traders, according to derivatives indicators.

On the bright side, most traders will be surprised if Bitcoin eventually breaks above $68,000, as there is room for bullish leverage and therefore a rally could be fueled.

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