BTC options data shows that bitcoin prices are still gaining legs, despite growing broader economic concerns and the possibility of a brief pause in the cryptomarket rally.
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It hit a high of $23,100 in 2023 and the move followed a remarkable recovery in traditional markets, especially in the tech-heavy Nasdaq Composite Index, which rose 2.9% on 20 January
Economic data continues to boost investor expectations that the U.S. Federal Reserve will reduce the pace and length of interest rate hikes. For example, sales of pre-owned homes fell 1.5% in December, the 11th consecutive decline after higher mortgage rates severely affected demand in the United States
On January 20, Google announced it would lay off 12,000 workers, more than 6% of its global workforce. While bad news spurs buying activity in risky assets, Dubravko Lakos-Bujas, chief US equity strategist at JPMorgan, expects weak earnings guidance to put “downward pressure” on the stock market.
Fears of a recession were heightened on Jan. 20 after Federal Reserve Governor Christopher Waller said a mild slowdown was tolerable if it meant reducing inflation.
Some analysts linked bitcoin’s gains to a digital currency group subsidiary that filed for Chapter 11 bankruptcy protection — allowing troubled Genesis Capital to try to restructure debt and its trading activities but, more importantly, a move that reduces Greyscale Investments’ risk of a fire sale of $13.3 billion in assets The trust fund is also grayscale GBTC
Let’s look at derived metrics to better understand how professional traders fare in the current market conditions.
Bitcoin margins fell to $21,000 over the long term after the pump
The margin market provides insight into how professional traders are positioned as it allows investors to borrow cryptocurrency to take advantage of their position.
For example, borrowing Stablecoin to buy Bitcoin can increase exposure. Bitcoin borrowers, on the other hand, can only short the cryptocurrency because they are betting on its value falling. Unlike futures contracts, the balance between margin longs and shorts does not always match.
OKX stablecoin/BTC margin debt ratio. Source: OKX
The above chart shows that the margin-to-credit ratio of OKX traders increased from Jan. 12 to Jan. 16, indicating that professional traders increased their leverage lengths as Bitcoin rose 18%
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However, the index reversed its trend as the 35-fold leverage of buying activity on 16 January returned to neutral boom levels on 20 January
Currently at 15, the metric favors stablecoin debt by a wide margin and suggests that shorts are not confident about building a bearish leveraged position.
Yet such figures do not suggest that pro traders grew at a lower pace or decided to reduce their leverage by accumulating excess margin. Therefore, it is important to analyze the options market to see if the sentiment has changed.
Despite the recent rally, options traders are neutral
The 25% delta skew is a telltale sign whenever arbitrage desks and market makers charge too much for upside and downside protection.
The indicator compares the same call (buy) and put (sell) options and will be positive when fear is prevalent because the risk premium of protective put options is higher than that of call options.
In short, if traders forecast a fall in bitcoin price, the Ski metric will go up 10%. The normalized excitation, on the other hand, shows a negative 10% skewness.
Bitcoin 60-Day Options 25% Delta Diagonal: Source: Laevitas
As shown above, the 25% delta diagonal reached its lowest level in more than 12 months on January 15. Options traders were ultimately paying a premium for a bullish strategy rather than the other way around.
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Currently minus 2%, the delta skew indicates that investors are pricing the same odds in both the bull and bear cases, which is slightly less optimistic than expected given the recent rise to $22,000
The derived data keeps the bullish case in check as buyers using Stablecoin margin have significantly reduced their leverage and the options market prices the same risk for both parties. The bears, however, have not reached a level that makes it easy to borrow bitcoin on the margin market and open up a small position.
The traditional market will continue to play a key role in determining this trend, but as long as derivative metrics remain healthy, Bitcoin bulls have no reason to fear