Is Fear Dominating Bitcoin's Price?

Bitcoin Holds Strong Amidst Market Volatility

Bitcoin faced a 4.9% correction in the four days following the failure to break the $28,000 resistance on Oct. 8, and derivatives metrics show fear is dominating sentiment in the market, but will it be enough to shake Bitcoin price from its current range?

Bitcoin Outperforms Traditional Finance Assets

Looking at the bigger picture, Bitcoin is holding up admirably, especially when compared to gold, which has fallen by 5% since June, and Treasury Inflation-Protected bonds (TIP), which have seen a 4.2% drop during the same period. Merely maintaining its position at $27,700, Bitcoin has outperformed two of the most secure assets in traditional finance.

Investors Analyze BTC Derivatives Metrics

Given Bitcoin’s price rejection at $28,000 on Oct. 8, investors should analyze BTC derivatives metrics to determine whether bears are indeed in control.

Reduced Interest in Alternative Hedge Instruments

It's important to note that the DXY index, which measures the U.S. dollar against a basket of foreign currencies, including the euro, Swiss Franc and British Pound, is nearing its highest level in 10 months. This indicates a strong vote of confidence in the resilience of the U.S. economy, at least in relative terms. This alone should be enough to justify reduced interest in alternative hedge instruments like Bitcoin.

Bitcoin Derivatives Show Declining Demand from Bulls

Bitcoin's future contract premium, also known as the basis rate, reached its lowest level in four months. The current 3.2% futures premium (basis rate) is at its lowest point since mid-June, before BlackRock filed for a spot ETF. This metric indicates a reduced appetite for leverage buyers, although it doesn't necessarily reflect bearish expectations.

Traders Less Confident in Bitcoin

Bitcoin options' 25% delta skew switched to "fear" mode on Oct. 10, with protective put (sell) options currently trading at a 13% premium compared to similar call (buy) options. Bitcoin derivatives metrics suggest that traders are becoming less confident, which can be partly attributed to the multiple postponements of the Bitcoin spot ETF decisions by the U.S. Securities and Exchange Commission, and concerns regarding exchanges' exposure to terrorist organizations.

For now, the negative sentiment toward cryptocurrencies seems to invalidate any benefits arising from macroeconomic uncertainty and the natural hedge protection provided by Bitcoin's predictable monetary policy. At least from a derivatives perspective, the likelihood of Bitcoin's price breaking above $28,000 in the short term appears slim.