Regulators stepped up this week to highlight the inherent risks in the crypto sector, but professional traders countered that by adding leverage to their long positions.
Many people may have already forgotten about Bitcoin
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the price in 2022 closed at $16,529, and the recent bounce and rejection of the $25,000 level may cause concern for some investors. Bears are retreating towards the $25,000 level and there were several failed attempts to reach this level between February 16th and 21st. The $23,500 resistance now appears to be continuing to gain momentum with each retest.
Determining the reason for Bitcoin’s 45.5% year-to-date gain is not a revelation, but it is partly due to the US Federal Reserve’s inability to control inflation, with interest rates hitting a 15-year high. The unintended consequence is higher payments on the public debt, which increase the budget deficit.
It’s impossible to predict when the Fed will change its stance, but the debt-to-gross domestic product ratio is above 128 and shouldn’t take more than 18 months. At some point, the value of the US dollar itself may be threatened by excessive debt use.
On February 23, the Fed, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a joint statement to US banks. which encourage reliance on funds from the crypto sector to prevent liquidity flight while maintaining strong risk management practices. Regulators said the report was prompted by “recent developments” in the industry due to increased risk volatility.
Let’s take a look at derivatives indicators to better understand how professional traders fare in today’s market environment.
Margined Bitcoins were used to protect the $24,000 level
The margin market provides insight into the position of professional traders as it allows investors to leverage their positions by borrowing cryptocurrencies.
For example, you can increase your exposure by borrowing stablecoins to buy bitcoin (long). Bitcoin lenders, on the other hand, can only make (short) bets on the cryptocurrency. Unlike futures contracts, the balance between margin longs and shorts is not always consistent.
The chart above shows that OKX margin leverage ratios for traders increased between February 21 and 23, indicating that skilled traders increased long leveraged positions when the price of Bitcoin fell below $24,000.
One might think that the excessive interest in margin positioning seems like a desperate move after a failed attempt to break the $25,000 resistance on February 21st. However, the unusually high margin credit ratio on stablecoin/BTC forces traders to take more collateral after a few days. . . .
Options traders are more bullish on downside risk
Traders should also analyze the options market to see if the recent rally has made investors more risk-averse. A delta skew of 25% is always a clear sign that arbitrageurs and market makers are overpaying for upside or downside protection.
The indicator compares the corresponding call (buy) and put (sell) options and becomes positive when panic spreads because the payout of the protective put option is higher than the risky call option.
In short, the skew metric will exceed 10% when traders fear a fall in the value of Bitcoin. On the other hand, 10% of the total excitation represents a negative skew.
Related: IMF Executive Board Approves Crypto Policy Framework, Including No Crypto as Legal Tender…
Note that the 25% delta skew has changed slightly to the downside since February 18 after options traders became more confident and the $23,500 support strengthened. A skew of -5% indicates a balanced interest between bullish and bearish alternative instruments.
Derivatives paint an unusual combination of excessive long margin demand and average risk assessment from options traders. However, there is nothing to worry about until the stablecoin/BTC ratio returns to below 30 in the coming days.
Given that regulators are putting a lot of pressure on the crypto sector, Bitcoin’s earnings are holding up well. For example, on February 22, General Director of the Bank of International Settlements Agustin.