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Key BTC trading metrics are sitting on the edge of the “worst outcome” scenario, suggesting that the current sell-off is far from over.

Bitcoin (BTC) briefly reached its lowest level in five months this Monday at $39,650, marking a 42.6% drawdown from the all-time high present on Nov. 22, 2021. Some argue that a “crypto winter” has already begun citing the $2.1 billion leveraged-long aggregate crypto futures contracts that were liquidated over the past seven days.

Bitcoin/USD price at FTX. Source: TradingView

The descending channel guiding Bitcoin’s negative performance for the past 63 days indicates that traders should expect sub-$40,000 prices by February.

Confidence from investors continued to decline after the United States Federal Reserve’s December Federal Open Market Committee session on Jan. 5. The monetary policy authority showed commitment to decrease its balance sheet and increase interest rates in 2022.

On Jan. 5, Kazakhstan’s political turmoil added further pressure to the markets. The country’s internet was shut down amid protests, causing Bitcoin’s network hashrate to tumble 13.4%.

Futures traders are still neutral

To analyze how bullish or bearish professional traders are, one should monitor the futures premium, which is also known as the “basis rate.”

The indicator measures the difference between longer-term futures contracts and current market levels. A 5%-to-15% annualized premium is expected in healthy markets, which is a situation known as "contango."

This price gap is caused by sellers demanding more money to withhold settlement longer, and a red alert emerges whenever this indicator fades or turns negative, which is a scenario known as “backwardation.”

Bitcoin 3-month future contracts basis rate. Source: Laevitas.ch

Notice how the futures market premium did not trade below 7% over the past couple of months. This is an excellent indicator, considering the absence of Bitcoin price strength during this period.

Options traders are not as bullish

To exclude externalities specific to the futures instrument, one should also analyze the options markets.

The 25% delta skew compares similar call (buy) and put (sell) options. This metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.

The opposite holds when greed is the prevalent mood, which causes the 25% delta skew indicator to shift to the negative area.

Deribit Bitcoin options 25% delta skew. Source: laevitas.ch

Readings between negative 8% and positive 8% are usually deemed neutral. The last time the 25% delta skew indicator entered the “fear” range at 10% was on Dec. 6, 2022.

Thus, options markets traders are at the very edge of the neutral-to-bearish sentiment because the indicator currently stands at 8%. Moreover, buying protective put options is becoming more expensive, so market markers and arbitrage desks are not confident that $39,650 was the bottom.

Overall, the sentiment is pessimistic and the $2.1 billion in aggregate futures contracts liquidations signal that derivatives traders’ longs (buyers) are quickly losing confidence. Only time will tell where the exact bottom is but, presently, there is not an indication of strong support coming from pro traders.