Traders Remain Cautious as Crypto Market Sees Gradual Recovery in Sentiment: Bybit Report

The recovery of crypto assets is accompanied by improved global risk appetite, investor sentiment and positive macroeconomic signals.

In recent days, bitcoin and other crypto assets have witnessed a steady but cautious recovery after last week’s extreme bearishness. The broader crypto market saw a gradual recovery after many assets fell to levels not seen in seven months.

As expected, the recent sell-off impacted the derivatives market. Now that the market is recovering, derivatives contracts are also stabilizing. The crypto exchange Bybit has one report in collaboration with the data and analytics platform Block Scholes, showing how well the derivatives market is improving.

Gradual recovery on the derivatives market

According to the report, BTC and ETH have returned to levels above $92,000 and $3,000 respectively. Their recovery is accompanied by improved global risk appetite, investor sentiment and positive macroeconomic signals. While participation rates in derivatives have remained low since the October 10 liquidation, BTC and ETH perpetual swaps have recorded several sessions of positive rates this week.

While funding rates for BTC and ETH perpetuals remained positive during the sell-off, altcoin rates underperformed. BTC and ETH have consistently posted positive prices over the past two weeks, but last weekend’s sell-off forced altcoin pairs to pay extra for leveraged short positions.

After that incident, open interest and volumes have remained relatively low for altcoin derivative instruments. However, analysts noted that implied short-term volatility levels indicate traders have priced in their most extreme fears of further short-term downside developments.

“Short-term implied volatility levels no longer trade at such an extreme premium following the normalization of the volatility term structure, and no longer offer as strong a premium over calls (despite a downside protection bias not being fully priced out),” the report said.

Positive macroeconomic landscape

The reaction of altcoin derivatives last weekend suggested relatively high demand for short positions to take advantage of further downward price movements. On the other hand, options saw a slight reduction in the bias towards puts.

Large-cap altcoins that improved the most during this week’s slow and steady recovery include Solana (SOL), Toncoin (TON), Cardano (ADA), and Curve DAO (CRV). These assets showed significant open interest in perpetual swaps.

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Meanwhile, the recovery of crypto assets has coincided with a positive trend in the macroeconomic landscape. The S&P 500 index showed some upward movement, and the end of the US government shutdown has lifted some of the fog clouding the Fed’s judgment ahead of the upcoming FOMC meeting. There is a high chance that the next meeting will end with a 25 bp cut, potentially triggering a BTC rally.