Bitcoin Market in Backwardation Supports A ‘Cautious Tone’ for BTC Price Short Term
- Bitcoin price certainly go down but wouldn’t be “surprising if they keep melting up”
- June Bitcoin futures contracts on BitMEX trading as low as $6,665 while $6,725 on CME
- A break below $5,000 zone will be particularly painful
The price of Bitcoin on spot exchanges is currently trading around $6,750 after sliding below $7,000 over the weekend. Some extremely bearish predictions are even calling for fresh lows.
However, the good thing is Bitcoin has found a “higher floor” and given that currently, the cash on exchanges is at all-time highs and sentiments are still near their all-time lows, and leverage at two-year lows, “it is VERY hard to short risk assets into a wall of cash right now, including Bitcoin. Prices can certainly go down, but it would not be surprising if they keep melting up,” said Jeff Dorman of Arca.
The stock market is also recording losses amidst the report of the largest drop of 8.7% on record going as far as 1967 in the US retail sales for March. This has been because of the majority of people staying home to slow the spread of coronavirus amidst the news of companies furloughing employees.
Treasury yield also fell to a 7-year low on the back of this data. The two-year-old hit the lowest level of 0.199% since July 2012.
The relief came in the form of stimulus checks that the government started sending late last week that Americans are largely spending on food and gas.
Lower prices in the future
This week, we started seeing the open interest on Bitcoin futures slowly rebounding.
Bitcoin futures open interest is timidly rebounding one month after the historic 40% one day sell-off pic.twitter.com/rMXs75Nves
— skew (@skewdotcom) April 13, 2020
However, bitcoin futures are in backwardation which means the price of an underlying asset currently is higher than prices trading in the futures market.
Bitcoin perpetual swaps meanwhile are at a much lower price.
A 1x long has gained ~4.3% in terms of $BTC collateral from fees since capitulation
Lack of aggressive selling, combined with futures discount on this scale has never led to a HTF bearish continuation
Why would this time be different?
Trapped bulls became trapped bears pic.twitter.com/cFUolyT2Yq
— //Bitcoin 𝕵ack 🐐 (@BTC_JackSparrow) April 14, 2020
Futures data suggests speculators are expecting to see lower prices in the near future.
According to Denis Vinokourov, head of research at Bequant, a crypto investment brokerage, “a break below $6,500 level will likely lead to another round of liquidations and send the price towards the $6,100/ $6,200 area.”
With not much support until the $5,000 zone, “a break below will be particularly painful,” for bulls, as such calling for a cautious tone which is supported by the shift in the futures curve into backwardation.
#Bitcoin futures are trading below the spot price, and some see this as a sign that markets will fall. On the contrary, #backwardation is usually a sign that markets are at an important lows. Prices might go down in the near term, but they won't collapse. #BTC $BTC #crypto
— Weiss Crypto Ratings (@WeissCrypto) April 15, 2020
Over-the-counter (OTC) bitcoin liquidity provider B2C2 also warns of caution with the weekly BTC chart “tapped the trendline and formed a shooting star. Unfortunately no follow-through in a negative funding environment (leveraged shorts outweigh longs).”