Bitcoin Rebounds 30% From January High, Eyes $90,000

Bitcoin (BTC) has shown resilience despite recent market fluctuations, with derivatives metrics indicating a potential rebound to $90,000. Although Bitcoin failed to sustain levels above $85,000 on March 14, the cryptocurrency has demonstrated a strong recovery from its 30% drop from its all-time high of $109,354 on January 20. The Bitcoin basis rate, which measures the premium of monthly contracts over spot markets, has rebounded to healthy levels, signaling a return to neutral territory after briefly dipping into bearish sentiment on March 13.

Traders typically demand a 5% to 10% annualized premium to compensate for longer settlement periods. The current 5% rate, while lower than the 8% recorded two weeks ago, remains within neutral territory, indicating that demand from leveraged buyers is stable. This resilience in the basis rate suggests that the market is not experiencing significant selling pressure, despite the recent drop in Bitcoin's price.

Bitcoin's price action has closely tracked the S&P 500, suggesting that factors driving investor risk aversion may not be directly tied to the top cryptocurrency. However, this also challenges the idea of Bitcoin as a non-correlated asset, as its price behavior has aligned more closely with traditional markets in the short term. If Bitcoin’s price remains heavily dependent on the stock market, which is under pressure due to fears of an economic recession, investors are likely to keep reducing exposure to risk-on assets and shift toward short-term bonds for safety.

However, central banks are expected to implement stimulus measures to avoid a recession, and scarce assets like Bitcoin are likely to outperform as a result. According to market expectations, there is less than a 40% chance that interest rates in the US will fall below 3.75% from the current 4.25% baseline ahead of the July 30 FOMC meeting. This suggests that while there is some uncertainty, the overall outlook for Bitcoin remains positive.

Professional traders are not actively using Bitcoin options for hedging presently, as shown by the 25% delta skew metric. This implies that few market participants expect the BTC price to retest the $76,900 level anytime soon. Bullish sentiment typically leads to put (sell) options trading at a 6% or higher discount, while bearish periods cause the indicator to rise to a 6% premium. However, the 25% delta skew has recently stayed within the neutral range, reflecting a healthy derivatives market.

To better gauge trader sentiment, examining BTC margin markets is important. Unlike derivatives contracts, which are always balanced between longs (buyers) and shorts (sellers), margin markets let traders borrow stablecoins to buy spot Bitcoin. Similarly, bearish traders can borrow BTC to open short positions, betting on a price drop. The Bitcoin long-to-short margin ratio at OKX shows longs outweighing shorts by 18 times. Historically, excessive confidence has pushed this ratio above 40 times, while levels below five times favoring longs are seen as bearish. The current ratio mirrors sentiment on January 30, when Bitcoin traded above $100,000.

There are no signs of stress or bearishness in Bitcoin derivatives and margin markets, which is reassuring, especially after over $920 million in leveraged long futures contracts were liquidated in the seven days ending March 13. Therefore, as recession risks ease, Bitcoin price is likely to reclaim the $90,000 level in the coming weeks, given the resilience in investor sentiment. This outlook is supported by the overall stability in derivatives metrics and the expectation of central bank stimulus measures, which could drive Bitcoin's price higher in the near future.