Bitcoin (BTC) has remained above $20,000 for the past nine days, but worsening traditional market conditions are making traders doubt whether support will hold.
On November 3, the Bank of England raised interest rates by 75 basis points to 3%, their biggest hike since 1989. The risks of a prolonged recession also increased as the Monetary Policy Committee scrambled to contain the inflationary pressure.
The UK’s monetary authority said its latest growth and inflation projections present a “very challenging” outlook for the economy. The committee’s statement added that “high energy prices and tighter financial conditions are weighing on spending,” thus putting negative pressure on employment data.
The US Federal Reserve also raised interest rates on November 2, the fourth consecutive hike, taking rates to the highest levels since January 2008. Confirmation of a conservative approach by central banks may explain in part why the price of Bitcoin failed to break the $21,000 resistance on Oct. 29 and has since dropped 4.5%.
Let’s take a look at derivatives metrics to better understand where professional traders stand in current market conditions.
Options traders are not particularly optimistic
The 25% delta slope is a telltale sign of when market makers and arbitrage desks are overcharging for bullish or bearish protection.
In bear markets, option investors place higher odds on a price decline, causing the bias indicator to rise above 10%. On the other hand, bull markets tend to put the bias indicator below -10%, which means bearish put options are priced in.
The delta slope had been above the 10% threshold until Oct. 26, indicating that options traders were less inclined to offer downside protection. A more balanced situation emerged, but the $21,000 stress test on Oct. 29 was not enough to instill confidence in option traders.
Currently, the 60-day delta slope stands at 6%, so traders and market makers are pricing in similar probabilities of price ups and downs. However, other data shows low confidence as BTC approaches the $20,000 support.
Leverage buyers ignored the recent rally
The ratio of long to short positions excludes externalities that might only affect options markets. It also collects data on exchange clients’ positions on spot, perpetual, and quarterly futures contracts, thus providing better insight into the position of professional traders.
From time to time there are methodological discrepancies between the various exchanges, so readers should keep an eye on changes rather than absolute figures.
Although Bitcoin rose 9% between October 22 and 29, professional traders slightly reduced their leverage long positions, according to the long and short positions indicator.
For example, the ratio for Binance traders improved a bit from the start at 1.25, but then ended the period below its initial level at 1.22. Meanwhile, Huobi showed a modest decline in its ratio of long to short positions, with the gauge dropping from 1.03 to 1.00 in the seven days to Oct. 29.
On cryptocurrency exchange OKX, the metric slightly decreased from 1.01 on Oct. 22 to 0.94 on Oct. 29. This means that, on average, traders were not confident enough to add leverage to bullish positions.
$20,000 support is weak, but traders are not bearish
These two derivatives metrics – options bias and long-to-short – suggest that Bitcoin’s 4.5% price correction from the test of $21,000 on Oct. 29 was supported by a moderate level of mistrust. of leverage buyers.
A more bullish sentiment would have caused the 60-day delta bias to go into the negative range and possibly pushed the long/short ratio higher. It is important to note that even professional traders can misread the market, but the current derivatives market reading favors weak support at $20,000.
From an optimistic perspective, there is no indication that professional traders are expecting a negative move. Basically, nothing changes even if the price revisits the $19,000 range because it has been 50 days since Bitcoin last traded above $22,000.
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