Fed liquidity injections drive down US Treasuries, but not Bitcoin price
Bitcoin (BTC) may have shown strength after defending the $28,000 support amid unfounded rumors about Binance, but an interesting development to note is that BTC is becoming less correlated to traditional markets after the US Federal Reserve opted to provide emergency liquidity to banks.
This change in stance by the central bank has caused a shift in the trajectory of US Treasuries as traders sought refuge from upward inflationary pressures. Bitcoin appears to be agnostic to the move and its price has hovered around $28,000 for the past week.
Meanwhile, the yield on the 5-year note fell to 3.50% on April 3, down from 3.70% the previous week. Higher demand for debt instruments reduces the payout, resulting in lower returns. The $152.6 billion in outstanding loans from the US Federal Reserve’s backstop lending program has been the driving factor.
The public’s lack of trust in banks has also caused them to re-evaluate what the Federal Deposit Insurance Corporation (FDIC) is and how the Fed no longer controls the path of inflation. The question of whether Bitcoin can serve as a reliable store of value during a crisis is still open, but the 70% annual gains certainly prove a point.
Investors reduce their cash
According to Bank of America data, total assets of money market funds in the United States reached a record $5.1 trillion. These instruments invest in short-term debt securities such as US Treasury bonds, certificates of deposit and certificates of deposit. Furthermore, fund manager and analyst Genevieve Roch-Decter, CFA, states that investors have withdrawn 1 trillion dollars from the banks because money market funds provide much higher returns.
Although Bitcoin investors see cryptocurrencies as a safe haven against inflation, a recession will reduce the demand for goods and services, resulting in deflation. The risk increased significantly after the American ISM Purchasing Managers Index data was published in March. At 46.3, the indicator hit its lowest level since May 2020, below analysts’ forecast of 47.5, indicating contraction.
According to Jim Bianco, macro analyst at Bianco Research, this was the 16th time since 1948 that the level had reached such a low point, and in 75% of those cases a recession followed.
Let’s examine Bitcoin derivatives calculations to determine the current market position of professional traders.
Bitcoin derivatives traders did not succumb to FUD
Quarterly bitcoin futures are popular with whales and arbitrage desks, which typically trade at a small premium to spot markets, indicating sellers are asking for more money to delay settlement for a longer period.
As a result, futures contracts in healthy markets should trade at a premium of 5% to 10% on an annual basis – a situation known as contango, which is not unique to crypto markets.
Since March 30, the Bitcoin futures premium has hovered near the neutral-to-bearish threshold, indicating that professional traders are unwilling to turn bullish despite the BTC price remaining close to $28,000.
The absence of demand for leveraged longs does not always imply a price decline. As a result, traders should examine Bitcoin’s options markets to determine how whales and market makers value the probability of future price movements.
The 25% delta bias indicates when market makers and arbitrage tables overload for upside or downside protection. In bear markets, option traders increase the odds of a price decline, causing the bias indicator to rise above 8%. Bullish markets, on the other hand, tend to drive the bias metric below -8%, indicating that bearish put options are less in demand.
Related: Bitcoin price bounces after CZ arrests rumors as traders eye $30,000 next
The 25% skew ratio is currently at -5 because protective puts are trading slightly cheaper than neutral-to-bullish calls. That’s a bullish indicator given the recent FUD generated after the CFTC sued Binance on March 27. The regulator alleges that Binance and CZ violated regulatory compliance and derivatives laws by offering trading to US clients without registering with market regulators.
So far, Bitcoin has held up well as the baking sector forced the Fed to reverse its credit tightening policy. But as long as regulatory uncertainty surrounds major crypto exchanges, Bitcoin is unlikely to break above $30,000.
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