Advanced BTC traders are using excessive leverage, but the bears’ reluctance to retaliate could extend the current rally in Bitcoin prices.
the price rose more than 12% on February 15, marking its highest intraday close in more than six months. Interestingly, the move came as gold hit a 40-day low of $1,826, signaling a potential shift in investors’ risk assessment of cryptocurrencies.
A stronger-than-expected U.S. inflation report on Feb. 14 showed consumer prices rose 5.6% year-on-year, followed by data showing elastic consumer demand, prompting traders to reevaluate the value of Bitcoin’s shortfall . U.S. retail sales rose 3% in January from the previous month, the biggest increase in nearly two years.
On-chain data shows that the recent gains can be attributed to a mysterious institutional investor who started buying on February 10th. According to Lookonchain, nearly $1.6 billion in assets poured into the crypto market between February 10 and 15. The analysis showed that the three main coins of the US
wallets sent funds to different exchanges simultaneously.
More importantly, news broke that the exchange Binance is preparing to collect fines and settle possible pending regulatory and police investigations in the US, according to a February 15 Wall Street Journal report. The exchange’s chief strategy officer, Patrick Hillman, added that Binance is “very confident and has a very good sense of where these discussions are going.”
Let’s take a look at the derivatives indicators to better understand how professional traders are faring in the current market conditions.
Bitcoin Margin Debts Have Entered The “FOMO” Range.
Margin markets provide insight into the positions of professional traders as it allows investors to borrow cryptocurrency to leverage their positions.
For example, one can increase exposure by borrowing stablecoins to buy (long) bitcoin. Bitcoin lenders, on the other hand, can only bet against (short) the cryptocurrency. Unlike futures contracts, the balance between margin and shorts does not always equalize.
The chart above shows that the OKX Traders Loan Margin Ratio increased between January 13th and 15th, signaling that professional traders added long support positions when Bitcoin price broke above the $23,500 resistance level.
Arguably, the demand for stablecoin lending for positioning is excessive, as stablecoin/BTC loan margin ratios above 30 are unusual. However, traders tend to place more collateral after a few days or weeks, causing the indicator to exit the FOMO level.
Options traders remain skeptical of a sustained rally
Traders should also analyze the options markets to see if the recent rally has led investors to risk. A delta skew of 25% is a sign that the arbitrage bureaus and markets are overdoing their upside or downside protection.
The indicator compares similar call (buy) and put (sell) options and will turn positive when fear prevails because the premium for the protective put options is higher than the risky call options.
In short, if traders fear a fall in the price of Bitcoin, the skewness will exceed 10%. On the other hand, the general excitement reflects a negative 10% skew.
Related: $24K Bitcoin – Is It Time To Buy BTC & Altcoins? Watch Market Talks live
Note that the 25% skew delta has been neutral over the past two weeks, signaling equal price for bullish and bearish strategies. This reading is highly unusual given that Bitcoin rallied 16.2% from January 13th to January 16th, and one would normally expect over-optimistic sentiment to skew below minus 10.
One thing is certain, the absence of bearish sentiment is present in the futures and options markets. However, there is some troubling evidence of excessive marginal demand for leveraged buyouts, although it is too early to call this a problem.
The longer Bitcoin holds above $24,000, the more comfortable pro traders feel with the current rally. Additionally, bears using futures markets liquidated $235 million between January 15 and 16, reducing appetite for bearish bets. Hence, the derivatives markets continue to support growth.