Bitcoin price peels back from its weekly high, but BTC derivatives markets look good

Bitcoin’s  price momentum has cooled since the Oct. 29 rally toward the all-time high, but the derivatives market continues to project traders’ optimism in a price recovery. 

The analysis of Bitcoin futures and options markets suggests that traders are maintaining positions without excessive leverage, which is crucial for a sustainable push toward new all-time highs. However, understanding the trigger for Bitcoin's price drop to below $69,000 on Nov. 1 remains essential.

When there's an elevated expectation of a Bitcoin price decline, the 25% delta skew metric typically trends above 7%, indicating that put (sell) options are priced at a premium due to increased demand. 

Bitcoin derivatives look stable despite the BTC price pullback

To assess whether Bitcoin traders’ sentiment has weakened after the recent downturn, it is useful to analyze the funding rate of perpetual contracts (inverse swaps). A neutral funding rate, without a cost for bullish leverage, suggests a lack of strong conviction, while rates exceeding 2.1% per month signal excessive optimism.

On Nov. 1, there was no significant impact on leverage demand, with the rate at 0.01% every 8 hours, or approximately 0.9% per month—generally viewed as neutral. 

There is no indication that leverage has been the primary driver behind Bitcoin's rally from $67,000 to $73,500 between Oct. 27 and Oct. 29, suggesting a healthy market trend. Overall, Bitcoin derivatives markets support a sustained bull market, potentially opening the path for further gains.

Multiple factors impact investor sentiment

From a trading standpoint, securing profits before major political and economic Bitcoin's recovery to $71,000 on Nov. 1 can be closely correlated with movements in the S&P 500 index, suggesting that both markets are reacting to similar macroeconomic indicators.

From a short-term perspective, during times of recession risk, traders often turn to cash positions and Treasury bills for safety. This pattern helps explain the recent declines in the stock market and Bitcoin following Intel's report of a 6% quarterly revenue drop compared to the prior year.

Recent financial disclosures from tech giants like Microsoft and Meta reveal an increase in AI investment and have dampened expectations for earnings growth. This news came on the heels of a 44% plummet in Super Micro Computer (SMCI) shares over three days after EY's unexpected auditor resignation.

The market mood shifted somewhat on Nov. 1 when the US Bureau of Labor Statistics disclosed a payroll growth of merely 12,000 for October, falling short of the anticipated 100,000.

Additionally, US wages rose by 0.4% from the previous month, stoking fears of inflation. Despite this, market analysts via the CME FedWatch tool are betting on a 0.25% interest rate cut by the US Federal Reserve on Nov. 7.

Events like the US presidential elections on Nov. 5 and the Federal Open Market Committee (FOMC) decision are advisable. The political push to stimulate the economy often leads to a depreciation of the US dollar, which can boost Bitcoin's price in the medium term.