Bitcoin experienced rapid fluctuations last night, with a price drop of 3.2% to $57844 in less than an hour, and then rebounding 5% to $60700 in the following thirty minutes. This price fluctuation reflects the uncertainty of macroeconomic conditions, especially after the Federal Reserve's weekend speech.

Economic recession is the biggest risk of a sharp drop in Bitcoin prices

According to Cointelegraph, traders are now concerned about whether Bitcoin will test the August 5th low of $49248 again, especially as interest in leveraged long positions decreases and the risk of a global stock market correction increases.

According to Bloomberg, due to the weakness of the labor market and the Federal Reserve's tightening policies, economists at JPMorgan have raised the probability of a US economic recession in 2024 from the previous 25% to 35%. Investors are now in a wait-and-see state, patiently waiting for the release of the US Producer Price Index (PPI) on August 13th and the Consumer Price Index (CPI) on August 14th. These data are expected to provide guidance for the Federal Reserve on whether to cut interest rates at least twice before the end of 2024.

It is crucial to analyze the Bitcoin futures market in order to evaluate the impact of recent Bitcoin price fluctuations. Due to the existence of delayed settlement periods, monthly Bitcoin futures have inherent costs, and sellers typically demand an annualized premium of 5% to 10% to offset this factor.

On August 12th, the annualized premium (basis rate) of Bitcoin futures decreased from 9% on August 11th to 6%, while retesting the support level of $58000. Although the current level is still within the neutral range, this indicates that there is insufficient demand for leverage from bulls, a trend that has been present since July 30th when the premium exceeded 10% for the last time.

The derivatives market shows a neutral sentiment

To determine whether this emotional shift is limited to the Bitcoin futures market, it is necessary to examine the demand in the Bitcoin options market. Usually, when the delta skewness indicator rises by more than 7%, it indicates that the market expects a price decline, while a negative 7% skewness usually reflects a bullish sentiment in the market.

Over the past week, the skewness indicator of Bitcoin options has remained relatively stable, indicating that there is no significant imbalance in the pricing of put and call options. This data indicates that market sentiment has declined compared to the situation at the end of July, when indicators showed moderate bullish sentiment. However, although the price of Bitcoin fell below $50000 on August 5th, there are still no signs of pressure.

One possible explanation for the current neutral sentiment is that the volatility of the past week has eliminated a significant amount of leveraged positions, with long and short positions clearing up to $634 million in the Bitcoin futures market. However, this cannot fully explain why there are still $28.8 billion worth of open contracts in the Bitcoin futures market.

Another possible explanation for the coldness of Bitcoin derivative indicators is the prevalence of arbitrage strategies, where traders capture futures premiums through fixed income operations. In this situation, market direction becomes irrelevant because one side will offset the other. Overall, even if Bitcoin price volatility persists, there is currently no clear indication that traders are turning bearish, nor is there any sign that excessive liquidation will trigger a chain sell-off that could cause the price to drop to $52000.