bitcoin (btc) has been trading within a tight 4.5% range for the past two weeks, indicating a consolidation level around the $34,700 mark.
Despite the price stagnation, the 24.2% gains since October 7 instill confidence, driven by the looming effects of the 2024 halving and the possible approval of an exchange-traded fund (ETF) of bitcoin spot in the United States.
Investors worry about bearish global economic outlook
Bears expect more macroeconomic data to support a global economic contraction as the US Federal Reserve keeps its interest rate above 5.25% to curb inflation. For example, on November 6, Chinese exports contracted 6.4% from a year earlier in October. Additionally, Germany reported on Nov. 7 that October industrial production was down 1.4% from the previous month.
Weaker global economic activity has led to WTI oil prices falling below $78 for the first time since late July, despite the possibility of major oil producers cutting supply. The president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, of the United States. comments on November 6 set a bearish tone, prompting a “flight to quality” response.
Kashkari stated:
“We have not completely solved the problem of inflation. We still have more work ahead of us to achieve this.”
Investors have sought refuge in US Treasuries, causing the 10-year yield to fall to 4.55%, its lowest level in six weeks. Interestingly, the S&P 500 stock index has reached 4,383 points, its highest level in almost seven weeks, defying expectations during a global economic slowdown.
This phenomenon can be attributed to the fact that S&P 500 companies collectively hold $2.6 trillion in cash and equivalents, offering some protection while interest rates remain high. Despite growing exposure to major technology companies, the stock market offers both scarcity and dividend yield, aligning with investor preferences in times of uncertainty.
Meanwhile, bitcoin futures open interest has reached its highest level since April 2022, standing at $16.3 billion. This milestone takes on even more importance as the Chicago Mercantile Exchange solidifies its position as the second largest market for btc derivatives.
Healthy Demand for bitcoin Futures and Options
The recent use of bitcoin futures and options has made media headlines. Demand for leverage is likely driven by what investors believe are the two most bullish catalysts for 2024: the potential for a spot btc ETF and the bitcoin halving.
One way to assess the health of the market is by examining the bitcoin futures premium, which measures the difference between the two-month futures contracts and the current spot price. In a strong market, the annualized premium, also known as the base rate, should typically be within the 5% to 10% range.
Let’s look at how this indicator has reached its highest level in more than a year, 11%. This indicates strong demand for bitcoin futures driven primarily by leveraged long positions. If the opposite were true, with investors betting heavily on bitcoin‘s price decline, the premium would have remained at 5% or less.
Other evidence can be derived from the bitcoin options markets, comparing demand between call and put options. While this analysis does not cover more complex strategies, it provides broad context for understanding investor sentiment.
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Over the past week, this indicator averaged 0.60, reflecting a 40% bias in favor of call options. Interestingly, bitcoin options open interest has seen a 51% increase in the last 30 days, reaching $15.6 billion, and this growth has also been driven by bullish instruments, as indicated by options volume data shopping.
As the price of bitcoin reaches its highest level in 18 months, a degree of skepticism and coverage could be expected. However, current conditions in the derivatives market reveal healthy growth with no signs of excessive optimism, aligning with the bullish outlook that points to prices of $40,000 or more by the end of the year.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
