#Bitcoin‘s (BTC) severe 26% drop from its $58,300 all-time high on Feb. 20 injected a bit of bearishness into the market, but from a technical perspective, this was purely psychological, as the digital asset held the $43,000 support with ease. This downside move caused indicators like the Crypto Fear & Greed Index to hit 38, its lowest level in five months.
Even though a $15,400 downside move might seem unusual, 25% and even larger corrections happened on six separate occasions during the 2017 bull run. Moreover, when BTC first made an all-time high at $42,000 on Jan. 8, a 31.5% negative swing to $28,750 happened in the following two weeks.
As Bitcoin tried to establish a bottom, derivatives contracts eliminated any bullish signal and momentarily displayed worrisome data. For example, the open interest on futures dropped 22% after peaking at $19.1 billion on Feb. 21.
As depicted above, considering the end-of-month expiry impact, BTC futures open interest fell by 22%. Albeit significant, the remaining $14.9 billion is still 44% above the previous month’s data.
Derivatives indicators held steady, indicating a healthy market
By measuring the futures contracts premium to the current spot levels, one can infer whether professional traders are leaning bullish or bearish. Typically, markets should display a slightly positive annualized rate, a situation known as “contango.”
Although the one-month futures contracts premium toned down from the ultra-bullish 6% rate seen mid-February, it did manage to sustain levels above 1.2%. The annualized equivalent is a 70% peak compared with the current 17% rate. Therefore, the futures contracts premium indicates that any excessive leverage from buyers has been eliminated, but we are nowhere near a bear market.
Meanwhile, the BTC options markets 25% delta skew measures how the neutral-to-bullish calls are priced compared with equivalent bearish puts.
The indicator acts as an options traders’ fear and greed gauge and was sitting at -5% until Feb. 21, meaning protection to the upside was more expensive.