Bitcoin (BTC) futures premium hit an 18-month high on July 4. But traders are now asking whether derivatives metrics indicate “overexcitement” or “reversion to the mean” after a long bear market.

BTC price gains limited by regulators, macroeconomics

Bitcoin price has been trading in a tight 4.4% range since June 22, oscillating between $29,900 and $31,160, as measured by its daily closing prices. The lack of a clear trend may be off-putting to some, but that’s a reflection of the opponents currently in the game.

For example, investor sentiment was negatively affected by the historic inversion of the US Treasury yield curve, which reached an all-time high.

US 10-year / 2-year spread. Source: Real Investment Consulting

The closely watched inverse spread between 2-year and 10-year Treasuries hit its highest level since 1981 at 1.09%. A phenomenon known as yield curve inversionwhen shorter-term Treasury bills trade at higher yields than longer-maturity bonds, it usually precedes economic recessions.

Related: Fed Holds Interest Rates But Bitcoin Options Data Still Point BTC Price Down

On the other hand, there are reportedly signs of strength in the US economy managed investors appreciate the possibility of further interest rate hikes by the central bank to keep inflation under control.

In addition to these macroeconomic distortions, the regulation of cryptocurrencies has also been in the center of investors’ attention recently. Here are some recent examples:

  • Kraken’s replacement was requested by the US District Court for the Northern District of California provide user details who engaged in transactions exceeding $20,000 in a calendar year;
  • Securities and Exchange Commission of Thailand banned cryptocurrency lending servicesthereby prohibiting crypto platforms from offering any form of return for deposited crypto customers;
  • The Monetary Authority of Singapore has announced new requirements for crypto service providers hold customer assets in a statutory trust until the end of the year.

So investors are probably now asking: Does it have bitcoin have the strength to break the $31,000 resistance? Of course, the potential economic recession and increasing regulatory measures around the world must first be taken into account.

Fortunately, Bitcoin futures contract premiums can provide traders with some clues about further market movement for the reasons described below – as well as the cost of hedging with BTC options.

Bitcoin futures premium hits 18-month high

Bitcoin Quarterly Futures they are popular among whales and arbitrage tables. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are demanding more money to delay settlement.

As a result, BTC futures in healthy markets should trade at an annual premium of 5% to 10% – a situation known as contango, which is not unique to crypto markets.

Bitcoin 3 Month Futures Annual Premium. Source: Laevitas

Demand for leveraged BTC longs has increased significantly over the past week as the July 3 futures contract premium jumped to 6.4% from 3.2% a week ago. In addition to hitting an 18-month high, the metric has finally moved into neutral to bullish territory.

Related: andHere’s what happened in cryptocurrency today

To further gauge market sentiment, it is also useful to look at option markets because a 25% delta skew can assess whether price stagnation has made investors less optimistic. It reveals when arbitrage desks and market makers are charging higher prices to protect against up or down moves.

In short, if traders expect the price of Bitcoin to fall, the skewness metric will rise above 7%, while periods of excitement usually have a negative deviation of 7%.

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

The 25% delta skew metric saw a complete reversal, indicating that bullish momentum increased on June 21 when it dipped below -7%. As the price of Bitcoin climbed back above $30,000, the indicator continued to improve, culminating in “greed” with a negative 13% slope on July 2.

Moderate Optimism “Healthy” for the Bitcoin Market

Typically, a 6.4% futures basis and a negative 13% delta skew would be considered slightly bullish. However, considering the analysts’ estimate and 50% chance of Bitcoin approval at BlackRock site, these metrics can be considered conservative. However, a certain degree of skepticism is indeed healthy for buyers using derivative contracts and avoids the risk of cascading liquidations.

Related: The Bitcoin ETF Race Begins: Has Institutional Confidence Returned to Crypto?

Currently, macroeconomic factors a regulatory uncertainty likely explain the pent-up optimism for BTC derivatives despite several requests for ETFs from the world’s largest asset managers.

So, 18-month highs aside, the current bitcoin futures premium remains relatively modest compared to previous instances of excessive optimism, such as 19% in October 2021.

So today’s futures premium of 6.3% represents a healthy market, as opposed to 10% or more, which suggests excessive optimism or euphoria. Additionally, traders should be confident that bulls have room to further leverage long positions without taking on excessive risk.

This article does not contain investment advice or recommendations. Every investment and trading step involves risk and readers should do their own research when making decisions.