The current 20% decline in Bitcoin (BTC) over the past four days has put the price at its lowest level in nine months and while these moves may seem extraordinary, a number of large listed and commodity companies have faces a similar correction. For example, natural gas futures corrected 15.5% in four days and nickel futures traded down 8% on May 9.

Other victims of the correction include several companies with market capitalizations of $10 billion and above that are listed on US exchanges. Bill.com (BILL) traded down 30%, while Cloudflare (NET) showed a price correction of 25.4%. Dish Network (DISH) also faced a drop of 25.1% and the price of Ubiquiti (UI) fell by 20.4%.

Continued weakness in economic data indicates that a recession is looming. At the same time, the US Federal Reserve has canceled its expansionary incentives and is now aiming to reduce its balance sheet by $1 trillion. On May 5, Germany also reported factory orders down 4.7% from the previous month. Unit labor costs in the United States showed an increase of 11.6% on the same day.

This bearish macroeconomic scenario may partly explain why Bitcoin and risk assets continue to correct, but a closer look at the positioning of professional traders may also provide useful insights.

Bitcoin futures premium stabilized at 2.5%

To understand whether recent price action reflects the sentiment of major traders, it is worth analyzing the Bitcoin futures premium, otherwise known as the “base rate”.

Unlike a perpetual contract, these fixed-timeframe futures do not have a funding rate, so their price will be very different from regular spot trades. The three-month futures contract trades at an annualized premium of 5% or less whenever these professional traders turn bearish.

On the other hand, a neutral market should exhibit a base rate of 5% to 12%, reflecting the reluctance of market participants to lock in Bitcoin low until the trade stabilizes.

Bitcoin 3 month futures premium. Source: laevitas.ch

The data above shows that Bitcoin’s futures premium has been below 5% since April 6, indicating that futures market participants are reluctant to open leveraged long positions.

Even with the above data, the recent 20% price correction was not enough to push this metric below the 2% threshold, which should be interpreted as positive. The bulls certainly have nothing to cheer about, but there are no signs of panic selling from a futures market perspective.

Options traders have entered deeper into the “fear” zone

To rule out futures-specific externalities, traders must also analyze options markets. The simplest and most effective measure is the 25% delta skew, which compares equivalent call (buy) and put (sell) options.

In short, the indicator will turn positive when “fear” prevails because the protective premium for put options is higher than call (bullish) options. In contrast, a negative bias of 25% indicates bullish markets. Finally, readings between minus 8% and plus 8% are generally considered neutral.

Deribit Bitcoin 30 Day Options 25% delta skew. Source: laevitas.ch

The chart above shows Bitcoin options traders signaling “fear” since April 8 after BTC fell below $42,500. Unlike the futures markets, the primary sentiment measure for options has shown deteriorating condition over the past four days, with the 25% delta skew currently standing at 14.5%.

To put things into perspective, the last time the “fear and greed” indicator for this options market hit 15% was on January 28, after the price of Bitcoin fell 23.5% in four days.

Bullish sentiment in margin markets has peaked

Traders should also analyze margin markets. Borrowing crypto allows investors to leverage their trading position and potentially increase their returns. For example, a trader can borrow Tether (USDT) and use the proceeds to increase their exposure to Bitcoin.

On the other hand, borrowing Bitcoin allows you to bet on the fall in its price. However, the balance between long and short margins is not always equal.

OKEx USDT/BTC margin lending ratio. Source: OKEx

The data shows that traders have been borrowing more Bitcoin recently, with the ratio dropping from 24.5 on May 6 to 16.8 currently. The higher the indicator, the more confident professional traders are with Bitcoin price.

Despite some recent Bitcoin borrowing activity aimed at betting on lower prices, margin traders remain mostly optimistic, according to the USDT/BTC Lending Ratio. Generally, numbers above five reflect a bullish trend and the recent peak of 24.5 was the highest level in over six months.

According to derivatives metrics, Bitcoin traders fear a deepening correction as macro indicators deteriorate. However, investors also expect a potential crisis in traditional markets, so Bitcoin’s 20% correction simply follows that of broader risk assets.

On a positive note, there is no sign of leveraged short (negative) bets using margin or futures, meaning sellers are unconvinced at current price levels.

The views and opinions expressed herein 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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