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Bitcoin futures enter backwardation for the first time in a year

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Bitcoin’s (BTC) month-to-date chart is very bearish, and the sub-$18,000 level seen over the weekend was the lowest price seen since December 2020. Bulls’ current hope depends on turning $20,000 to support, but derivatives metrics tell a completely different story as professional traders are still extremely skeptical.

BTC-USD 12-hour price at Kraken. Source: TradingView

It’s important to remember that the S&P 500 index dropped 11% in June, and even multi-billion dollar companies like Netflix, PayPal and Caesars Entertainment have corrected with 71%, 61% and 57% losses, respectively.

The U.S. Federal Open Market Committee raised its benchmark interest rate by 75 basis points on June 15, and Federal Reserve Chairman Jerome Powell hinted that more aggressive tightening could be in store as the monetary authority continues to struggle to curb inflation. However, investors and analysts fear this move will increase the recession risk. According to a Bank of America note to clients issued on June 17:

“Our worst fears around the Fed have been confirmed: they fell way behind the curve and are now playing a dangerous game of catch up.”

Furthermore, according to analysts at global investment bank JPMorgan Chase, the record-high total stablecoin market share within crypto is “pointing to oversold conditions and significant upside for crypto markets from here.” According to the analysts, the lower percentage of stablecoins in the total crypto market capitalization is associated with a limited crypto potential.

Currently, crypto investors face mixed sentiment between recession fears and optimism toward the $20,000 support gaining strength, as stablecoins could eventually flow into Bitcoin and other cryptocurrencies. For this reason, analysis of derivatives data is valuable in understanding whether investors are pricing higher odds of a downturn.

The Bitcoin futures premium turns negative for the first time in a year

Retail traders usually avoid quarterly futures due to their price difference from spot markets, but they are professional traders’ preferred instruments because they avoid the perpetual fluctuation of contracts’ funding rate.

These fixed-month contracts usually trade at a slight premium to spot markets because investors demand more money to withhold the settlement. This situation is not exclusive to crypto markets. Consequently, futures should trade at a 5%-to-12% annualized premium in healthy markets.

Bitcoin 3-month futures’ annualized premium. Source: Laevitas

Bitcoin’s futures premium failed to break above the 5% neutral threshold, while the Bitcoin price firmly held the $29,000 support until June 11. Whenever this indicator fades or turns negative, this is an alarming, bearish red flag signaling a situation is known as backwardation.

To exclude externalities specific to the futures instrument, traders must also analyze the Bitcoin options markets. For example, the 25% delta skew shows when Bitcoin market makers and arbitrage desks are overcharging for upside or downside protection.

In bullish markets, options investors give higher odds for a price pump, causing the skew indicator to fall below -12%. On the other hand, a market’s generalized panic induces a 12% or higher positive skew.

Bitcoin 30-day options 25% delta skew: Source: Laevitas

The 30-day delta skew peaked at 36% on June 18, the highest-ever record and typical of extremely bearish markets. Apparently, the 18% Bitcoin price increase since the $17,580 bottom was sufficient enough to reinstall some confidence in derivatives traders. While the 25% skew indicator remains unfavorable for pricing downside risks, at least it no longer sits at the levels which reflect extreme aversion.

Analysts expect “maximum damage” ahead

Some metrics suggest that Bitcoin may have bottomed on June 18, especially since the $20,000 support has gained strength. On the other hand, market analyst Mike Alfred made it clear that, in his opinion, “Bitcoin is not done liquidating large players. They will take it down to a level that will cause the maximum damage to the most overexposed players like Celsius.”

Until traders have a better view of the contagion risk from the Terra ecosystem implosion, the possible insolvency of Celsius and the liquidity issues being faced by Three Arrows Capital, the odds of another Bitcoin price crash are high.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.



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Bitcoin

What are Bitcoin covenants, and how do they work?

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Various prominent Bitcoin experts, including Adam Back, Jimmy Song and Andreas Antonopoulos, have raised some concerns over the implementation of restrictive covenants, in particular with the BIP119.

In particular, Antonopoulos has voiced concerns over “recursive covenants” that the new update could convey, thereby deteriorating the network. A recursive covenant occurs when a programmer restricts a transaction, but he does it in a way that restricts another transaction after that, starting a domino effect resulting in future limitless recursive covenants.

Blacklisting and risks of censorship and confiscation

While locking up where a Bitcoin can be spent is advantageous to ensure more security, it also provides grounds for censorship, and control by governments, which would hinder the very existence of Bitcoin. Authorities could potentially force exchanges to withdraw only to covenants with some control over the coin.

While this same risk already exists, since governments can ask exchanges to send only to addresses with a taproot spend path or multi-sig controlled by them, could the implementation of covenants facilitate malicious purposes where it would make it easier for governments to enforce a sort of on-chain KYC? 

Fungibility threats

Covenants might interfere with Bitcoin’s fungibility — the ability of each Bitcoin to be identical in function and quality.

While useful for security and scalability, covenants would change the properties of specific Bitcoin units, essentially creating different types of digital currency, distinct according to what could be spent or where it could be sent. 

As a result, those who oppose the change argued that limiting how you can spend your Bitcoin would ultimately limit Bitcoin’s use as a digital currency, with inevitable consequences in its value.

There are strong opinions on covenants’ pros and cons; however, debates are healthy and necessary to improve a decentralized and leaderless network. Ultimately, the final decision will be down to the users and node operators who will download the software that better reflects their viewpoint.

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BTC price tops 10-day highs as Bitcoin whale demand sees ‘huge spike’

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Bitcoin (BTC) made the most of weekend volatility on June 26 as a squeeze saw BTC/USD reach its highest in over a week.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

“Unusual whale activity” flagged

Data from Cointelegraph Markets Pro and TradingView followed the largest cryptocurrency as it hit $21,868 on Bitstamp.

Just hours from the weekly close, a reversal then set in under $21,500, Bitcoin still in line to seal its first “green” weekly candle since May.

The event followed warnings that volatile conditions both up and down could return during low-liquidity weekend trading. On-chain data nonetheless fixed what appeared to be buying by Bitcoin’s largest-volume investor cohort prior to the uptick.

“Unusual whale activity detected in Bitcoin,” popular analytics resource Game of Trades observed.

“The supply held by entities with balance 1k-10k BTC just saw a huge spike in demand. Let’s watch if the trend confirms.”

An accompanying chart from on-chain analytics firm Glassnode showed shifting up markedly from around the time BTC/USD hit lows of $17,600 this month.

BTC supply held by entities with 1,000-10,000 BTC annotated chart. Source: Games of Trades/ Twitter

As Cointelegraph reported, whales had eagerly purchased BTC below $20,000, forming new support clusters in the process.

CME futures gap looms large

For others, however, conservative views on price action remained the norm.

Related: Bitcoin gives ‘encouraging signs’ — Watch these BTC price levels next

Cointelegraph contributor Michaël van de Poppe eyed the need to crack $21,600 definitively in order to secure the chances of further upside. Additionally, last week’s closing price of $21,100 on CME Group’s Bitcoin futures could provide a short-term target.

“Standard weekend fake-outs happening and probably ending at CME close at $21.1K for Bitcoin,” he forecast on the day.

“No clear breakout above $21.6K at this point, yet.”

CME Bitcoin futures 1-hour candle chart. Source: TradingView

The monthly close was still on course to cement Bitcoin’s worst June on record with monthly losses of almost 33%.

Along with May 2021, this would also be the worst-performing month since before the 2018 bear market bottom, data from on-chain monitoring resource Coinglass confirms.

Bitcoin monthly returns chart (screenshot). Source: Coinglass

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.



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Small-time investors achieve the 1 BTC dream as Bitcoin holds $20k range

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Ever since early Bitcoin (BTC) investors woke up millionaires as the ecosystem gained tremendous popularity alongside the mainstreaming of the internet, investors across the globe have been in the rush to accumulate as many of the 21 million BTC — one Satoshi at a time.

With BTC recently trading at the $20,000 range for the first time since 2020, small-time investors found a small window of opportunity to achieve their dream of owning at least 1 BTC. On June 20, Cointelegraph reported that the number of Bitcoin wallet addresses containing one BTC or more increased by 13,091 in just 7 days.

While the total number of addresses holding 1 BTC saw an immediate reduction in days to come, the crypto community on Reddit continues to welcome new crypto investors that hodled their way into becoming a wholecoiner.

A Reddit post announcing the procurement of 1 Bitcoin. Source: Reddit

Redditor arbalest_22, who shared the above screenshot, revealed that it took him around $35k in total to accumulate 1 BTC over several months since February 14, 2021. Showing further support for the Bitcoin ecosystem, the Redditor aims to continue procuring Satoshis or sats until he accumulates over 2 BTC. 

Arbalest_22 started purchasing BTC from crypto exchange Coinbase but later started using Strike owing to lower fees. Sharing a peek into his future plans, they stated:

“I’m hoping in the future I can treat it more like rich people treat real estate and take loans out against it. Then as it appreciates just pay off the old loan with a new one. Boom, tax-free income.”

Following suit, another Reddit user Evening-Main-5860, too, posted about being able to 1 BTC after largely following a dollar-cost averaging (DCA) strategy, wherein they regularly bought smaller amounts of BTC over a long period of time, stating:

“I was able to catch the falling knife and buy enough to get me over the finish line. This was no easy feat. I’m just an ordinary guy with an ordinary life.”

Data on number of wallet addresses with at least 1 BTC. Source: Glassnode

Between June 15 to June 25, the total number of Bitcoin wallet addresses holding more than 1 BTC grew by 873, according to Glassnode data.

Related: ‘Bitcoin dead’ Google searches hit new all-time high

While falling BTC prices are seen by many as an investment opportunity, Google search trends highlight the tendency of other investors to speculate about its demise.

The Google search results reflect peak anxiety for the cryptocurrency markets following weeks of relentless selloffs in asset prices.



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