By Mark Ackman
The value of Bitcoin has crossed the $28,000 threshold, however, some are still uncertain about its stability.
According to the token’s future contracts data, some traders appear to be uncertain about the sustainability of the recent upward trend in the market.
Bitcoin reached a new high of over $28,000 this week possibly due to the crisis that the conventional banking system is facing.
However, despite the significant increase of 36% in just eight days, traders seem to lack enthusiasm about its prospects.
Although Bitcoin has performed well, there are factors that suggest investors and traders remain cautious about its future price movements.
Recently Swiss multinational investment bank, Credit Suisse which has been established for over 167 years received emergency liquidity assistance from the Swiss regulator.
This is indicated if the fact that the ongoing worldwide banking failure still poses a threat to the global financial system.
This week the Union Bank of Switzerland entered into a merger with Credit Suisse as an emergency rescue as announced by the Swiss authorities.
This was a measure taken to prevent any further disruption to the banking sector globally. The deal may potentially receive over $280 billion in support from the state and the central banking system.
This amount is equal to one-third of the gross domestic product (GDP) of Switzerland. However, it is difficult to interpret this agreement as a positive indication of financial stability.
It in essence reflects the ongoing vulnerabilities and uncertainties within the global financial system, which includes the central banks.
US Banking System Meets a Similar Fate
A parallel banking crisis arose in the United States (US) as well when big banks like the Silvergate Bank met a similar fate.
The US Treasury offered emergency credit support to safeguard the banking sector and strengthen the reserves of the Federal Deposit Insurance Corporation.
The Bank Term Funding Program was introduced last week to serve as a safety net for banks. This is a reversal from the trend set back in 2022 when the Federal Reserve began selling assets on a monthly basis.
Inflation-controlled Policies and Cryptocurrency
The Federal Reserve deviated from its strategy to combat inflation by offering $300 billion as an emergency loan to banks.
Inflation rates have exceeded the target of 2% year-over-year since June 2021, reaching more than 5%.
The previous strategy of tightening involved raising interest rates and decreasing the $4.8 trillion worth of assets acquired by the Federal Reserve.
Cryptocurrency investors are often hopeful that cryptocurrencies will become detached from traditional markets.
However, there are currently limited reasons to justify investments in cryptocurrencies, especially for businesses, mutual fund managers, or well-off investors.
In times of economic recession, investors typically hold onto cash or short-term government debt instruments to keep their day-to-day operations running and potentially make bargain purchases.
Long and Short Positions in Bitcoin Derivatives Market Remain Balanced
Bitcoin futures contracts that span a quarter are favored by large investors and arbitrage desks. These contracts typically have a slight markup compared to the current market prices.
This implies that sellers are demanding a higher price for delaying the settlement of the contract.
In a healthy market, futures contracts ought to have a premium of 5% to 10% per year. This situation is commonly referred to as contango and is not specific to the cryptocurrency industry.
The Bitcoin futures premium indicator remains steady at 2.2% since last week. This suggests about the leveraged buying activity that there has been no increase in demand for it.
When the indicator is below 5%, it typically indicates pessimism, which is unexpected given the 36% price increase in a week’s time.
Even though there is no demand for leveraged longs, it does not essentially mean that there will be a drop in price.
Traders should, therefore, consider exploring Bitcoin’s options markets to understand how market makers assess the probability of future price movements.
When the market is experiencing a bearish trend, options investors tend to assign higher probabilities to a drop in prices. What this results in are the skew indicator rising more than 8%.