Bitcoin (BTC) has been trading near $16,500 since Nov. 23, recovering from a dip to $15,500 as investors feared the imminent insolvency of Genesis Global, a cryptocurrency lending and trending company. Genesis stated on Nov. 16 that it would “temporarily suspend redemptions and new loan originations in the lending business.” 

After causing initial mayhem in the markets, the firm refuted speculation of “imminent” bankruptcy on Nov. 22, although it confirmed difficulties in raising money. More importantly, Genesis’ parent company Digital Currency Group (DCG) owns Grayscale — the asset manager behind Grayscale Bitcoin Trust, which holds some 633,360 BTC.

Contagion risks from the FTX-Alameda Research implosion continue to exert negative pressure on the markets, but the industry is working to improve transparency and insolvency risks. For example, on Nov. 24, crypto derivatives exchange Bybit launched a $100 million fund to help market makers and high-frequency trading institutions struggling with financial or operational difficulties.

More recently, on Nov. 25, Binance published a Merkle Tree-backed proof of funds for its Bitcoin deposits. Moreover, the exchange outlined how users can use the mechanism to verify their holdings. There’s no doubt that centralized institutions must embrace transparency and insurance mechanisms to regain investors’ trust.

First, however, one must analyze Bitcoin derivatives markets to fully understand how professional traders are digesting such news.

Futures market discount improved slightly but remains far from bullish

Fixed-month futures contracts usually trade at a slight premium to regular spot markets because sellers demand more money to withhold settlement for longer. Technically known as contango, this situation is not exclusive to crypto assets.

In healthy markets, futures should trade at a 4% to 8% annualized premium, which is enough to compensate for the risks plus the cost of capital. The opposite, when the demand for bearish bets is exceptionally high, causes a discount on futures markets — known as backwardation.

Considering the data above, it becomes evident that derivatives traders flipped bearish on Nov. 9, as the Bitcoin futures premium flipped negative. Yet, according to futures markets, the $15,500 dip on Nov. 21 was not enough to instill additional demand for leveraged short positions.

Option markets confirm the bearishness

Traders should analyze options markets to understand whether Bitcoin will likely retest the $15,500 support. The 25% delta skew is a telling sign whenever arbitrage desks and market makers are overcharging for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put options premium is higher than risk call options.

In a nutshell, the skew metric will move above 10% if traders fear a Bitcoin price crash. On the other hand, generalized excitement reflects a negative 10% skew.

As displayed above, the 25% delta skew has been above the 10% threshold since Nov. 9, indicating options traders are pricing a higher risk of unexpected price dumps. Currently at 18%, it signals investors are fearful and reflects a lack of interest in offering downside protection.

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A surprise pump will likely cause more impact

Considering that both Bitcoin futures and options markets are currently pricing higher odds of a downside, there is no reason to believe that an eventual retest of the $15,500 bottom would cause massive liquidations.

Furthermore, the slight reduction in the futures discount shows bears lack the confidence to open leverage shorts at current price levels. Even though Bitcoin derivatives data remains bearish, the surprise of an eventual bull run to $18,000 is likely to cause more havoc. But, for now, bears remain in control according to BTC futures and options data.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.