The long and short positions are in a stalemate, and options data suggests that BTC will still adjust in the short term

Author: Mary Liu, BitpushNews

Yesterday, the upward momentum driven by the CPI faded, and on Thursday, cryptocurrencies entered a consolidation phase. In the early hours of Thursday, Bitcoin traded mainly around the support level of $61,000, then slid to the support level of $65,000 in the afternoon. As of the time of writing, BTC is trading at $65,215, down 1.55% in the last 24 hours.

Although yesterday's rebound was the strongest performance for BTC since the end of March, weak U.S. economic data increased the likelihood of the Federal Reserve cutting rates in September, a shift that could also prompt the Bank of England and the European Central Bank to cut rates as early as June. However, three Federal Reserve officials (Cleveland Fed President Loretta Mester, New York Fed President John Williams, and Richmond Fed President Thomas Barkin) made hawkish comments during speeches on Thursday, leading to declines in major indices.

At the close, the S&P 500 and Nasdaq indices both posted losses, down 0.15% and 0.25%, respectively, while the Dow closed flat.

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

The current overall market capitalization of cryptocurrencies is $2.35 trillion, with Bitcoin's dominance at 54.6%.

Is the U.S. Economy Strong?

While the strong rebound from "soft" inflation on Wednesday excited crypto traders, market analyst Bloodgood warned against jumping to conclusions, as CPI-driven rebounds "never last."

He stated, "Since early May, Bitcoin has been fluctuating between the weekly support level of $60,000 and the daily resistance level of $64,000." "From the daily chart, we can see that a higher low has formed, and at the time of writing, Bitcoin's trading price is slightly below the daily resistance level."

Bloodgood believes, "This daily level has been tested multiple times, so from a technical analysis perspective, it makes me believe it will break through sooner or later. From a more macro perspective, we can say this rise is due to the CPI news, and we know this rise will never last, so don't rush to conclusions now. Wait for the level to be broken and confirmed before trading."

Options Traders Expect Bitcoin to Adjust in the Short Term

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

CF Benchmark analysts noted that although Bitcoin broke through the $66,000 mark after yesterday's weak inflation data, "the implied volatility of out-of-the-money (OTM) put options remains higher compared to call options."

They added that derivatives traders are willing to pay higher premiums for OTM put options, which is an indicator of a bearish outlook in the short term. The increase in implied volatility (IV) of OTM put options indicates that traders are essentially hedging against a potential decline in Bitcoin's value.

IV is a metric used in the options market that represents the market's forecast of the potential future movements or price fluctuations of an asset or security.

In contrast to the short-term outlook, analysts pointed out that the volatility curve between long-term put and call options is "relatively flat," with call options slightly skewed. Analysts stated, "This suggests that investors are more optimistic about Bitcoin's long-term prospects, and if expectations for deflation begin to accelerate following a favorable consumer price index report, it will be worth watching whether the skew in call options increases."

CF Benchmark's analysis found that the relative stability between long-term put and call options may also indicate increased institutional participation, "as these investors are less likely to experience extreme emotional fluctuations."

Bitcoin Derivatives Flat

The long-to-short ratio of top traders consolidates positions across spot, perpetual, and quarterly futures contracts, allowing for inferences about these traders' bullish or bearish sentiments.

Coinglass data shows that at OKX, the current long-to-short ratio is 0.96, indicating that long and short positions are roughly equal. However, this position is less optimistic compared to May 14, when the ratio was 1.25 in favor of longs. Similarly, compared to May 14, Binance's top traders have shown a decrease in bullish sentiment, with the long-to-short ratio dropping from 1.31 to 1.14.

To assess retail traders' interest, attention should be paid to perpetual futures, also known as inverse swaps. These contracts include an embedded interest rate that recalculates 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 over the past month, Bitcoin's funding rate has remained below 0.01%, indicating a balance in demand between longs and shorts. According to derivatives indicators, even the recent rise above $66,000 has failed to instill confidence in retail traders.

On the positive side, if Bitcoin ultimately breaks through $68,000, most traders will be caught off guard, as there is bullish leverage space, which could drive a rebound.