Bitcoin prices are flashing some bullish signs, but traders aren’t too eager to add long-term leverage until the Federal Reserve shows its cards on February 1st.
Bitcoin
BTC
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$24,068
Prices reacted mixed on Jan. 25 after the U.S. reported fourth-quarter GDP growth of 2.9%, which was slightly better than expected. Yet the sum of all goods and services traded between October and December fell 3.2% from the previous quarter.
Another set of data limiting investor confidence was that the US Federal Reserve would not roll back its contraction measures soon after US durable goods orders jumped 5.6% in December This index came in much higher than anticipated, So it could potentially mean that interest rates will continue to rise for a little longer than expected.
Oil prices are also still a focus for investors, with West Texas Intermediate (WTI) near its highest level since mid-September, currently trading at $81.50 underlying this after the US and Germany decided on December 25 to send war tanks to Ukraine The escalation of the Russian-Ukrainian conflict
The United States Dollar Index (DXY), a measure of dollar strength against a basket of top foreign currencies, hit near an eight-month low of 102. This indicated less confidence in the US Federal Reserve’s ability to contain inflation, preventing a significant slowdown.
Regulatory uncertainty could also be important in limiting bitcoin’s boom. On January 26, Dutch central bank De Nederlandsche Bank fined cryptocurrency exchange Coinbase $3.6 million for failing to comply with local regulations for financial services providers
Let’s look at derived metrics to better understand how professional traders fare in the current market conditions.
Bitcoin margins increased somewhat longer
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 doesn’t always match.
OKX stablecoin/BTC margin debt ratio. Source: OKX
The above chart shows that margin to debt ratios for OKX traders rose slightly after January 20, indicating that professional traders added leverage long after bitcoin broke above the $21,500 resistance
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One could argue that the demand to borrow fixed currencies for bull shifts is far lower than the levels seen earlier in January. However, Stablecoin/BTC margin debt ratios above 30 are uncommon and generally overly optimistic.
More importantly, the current metric at 17 favors Stablecoin debt by a wide margin and suggests that shorts are not confident of creating a bearish leveraged position.
Options traders flirt with optimistic biases
Traders should also analyze the options market to understand whether recent increases have made investors more risk-averse. The 25% delta diagonal is a telltale sign whenever arbitrage desks and market makers charge too much for upside 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
The 25% delta skew flirted with an optimistic bias on January 21, as the indicator hit the limit at minus 10. This movement coincides with an 11.5% BTC price increase and subsequent denial at $23,375. Since then, options traders have been hedging their risks from unexpected price drops.
Related: Here’s what bitcoin prices could do right after the U.S. government resolves the debt ceiling impasse
Currently, a delta diagonal of near zero indicates that investors value the same risk of downside and upside. So, on the one hand, the lack of demand for margin traders willing to short Bitcoin seems promising, but at the same time, options traders have not been confident enough to be optimistic.
The longer Bitcoin stays above $22,500, the more risky it becomes for those making (small) bets on a fall in BTC price. Still, traditional markets are essential ground in determining these trends
