According to CoinDesk, a key bitcoin indicator based on futures and options is signaling the potential for a leverage flushout and a sudden drop in price. The ratio between the implied yield basis and options-induced one-month implied volatility has more than doubled to around 0.34 this year, according to data tracked by crypto structuring and trading solutions firm STS Digital. Jeff Anderson, a senior trader at STS Digital, explained that when the implied yield basis is large relative to the underlying volatility, it can signify outsized levels of leverage and speculation, which often leads to leverage washout or forced closure of leverage positions due to margin shortage.
Bitcoin has been trading in a narrow range between $50,500 and $53,500 in recent weeks, awaiting a breakout. Markets build energy during such consolidations, eventually breaking out to produce large moves in either direction. Greg Magadini, head of derivatives at Amberdata, noted that Bitcoin is currently in a negative gamma profile range, but spot prices seem to be stuck between the $50k-$52k range, and a move out of there is needed for any momentum to come in. Meanwhile, CoinDesk Indices' Bitcoin Trend Indicator has signaled a 'significant uptrend' for the past 26 days, indicating upward trends in all four of the look-back periods the signal observes. However, Andy Baehr, head of product at CoinDesk Indices, warned that the signal could change quickly if the recent consolidation of bitcoin's price persists.
