Bitcoin investors remain optimistic despite the volatility.

Bitcoin has taken investors on a roller coaster after reaching an all-time high of 124,089 USD and then falling to 117,500 USD, leading to a liquidation of 227 million USD in leveraged positions, although derivative indicators were hardly affected.

The question is whether investors are overreacting to the inflation data from the US, or if there are factors in the cryptocurrency market itself that are preventing a clear breakout above the 122,000 USD level?

The annual premium for 3-month BTC futures contracts | Source: laevitas.chThe premium level of Bitcoin futures contracts has been almost unaffected by the fall of 6,630 USD. Currently, this index stands at 9%, within the neutral range of 5%-10%. This indicates that the recent record highs were not due to excessive leverage and investors have remained calm despite prices dropping below 118,000 USD. However, the data also suggests a lack of confidence in a price increase to 150,000 USD.

Is high inflation the cause of Bitcoin’s decline?

It can be argued that the 3.3% annual increase in the United States Producer Price Index (PPI) in July has made investors more cautious, as this inflation figure is higher than expected. The initial negative reaction reflects a lower probability of multiple interest rate cuts. However, the S&P 500 index eventually recovered and erased the day’s losses, indicating that the strong correction of Bitcoin may be influenced by other factors.

Source: CME FedWatchAccording to the CME FedWatch tool, the implied probability of the Federal Reserve (Fed) cutting interest rates to 3.75% or lower in January 2026 is currently 61%, down from 67% a week ago. This indicates a decline in confidence in strong monetary policy easing, a context that often puts pressure on risk assets like Bitcoin.

Market Reaction

Investors seem to have reacted negatively to U.S. Treasury Secretary Scott Bessent’s statement that the government has no plans to expand Bitcoin purchases for the Strategic Reserve Fund. In an interview with Fox Business, Bessent also dismissed the idea of reallocating the funds obtained from the Treasury’s gold revaluation into Bitcoin. This message contradicts market expectations, as the Executive Order signed by U.S. President Donald Trump in March specifically mentioned “neutral budget strategies to purchase additional Bitcoin.”

The Bitcoin options market shows signs of recovery

To assess whether Bitcoin investors predict that prices will continue to fall, we should evaluate the delta skew of options. A higher cost for the (put) option typically indicates a bearish market, causing this index to move above the neutral threshold of 6%.

The delta skew of Bitcoin options for 30 days (put-call) at Deribit | Source: laevitas.chCurrently, the Bitcoin options skew stands at 3%, indicating a balanced risk outlook, consistent with a healthy market. Importantly, traders have shown resilience even as Bitcoin continuously fails to hold above 120,000 USD. While this does not imply confidence in a sustainable bullish trend, it suggests little concern about retesting the support level of 110,000 USD.

Since U.S. stocks erased most of their losses following the latest inflation report, it is likely that Bitcoin traders have taken advantage of this move to lock in profits. Greater concern seems to stem from macroeconomic conditions, especially as U.S. government debt has surpassed the $37 trillion mark.

Bitcoin remains in a favorable position to achieve profits by 2025, supported by central banks expanding their balance sheets to offset budgetary imbalances. However, based on weak activity in the derivatives markets, enthusiasm for a decisive breakout above 120,000 USD seems to be limited.

Mr. Teacher