Despite regulatory pressure and worsening macroeconomic conditions, Bitcoin (BTC) proved bullish, holding close to $28,000 over the past week. Additionally, professional traders have held leveraged long positions on margin and in the futures markets, indicating strength.
On the regulatory side, on April 4, the Texas Senate Business and Commerce Commission agreed to go ahead and remove incentives for miners operating within the state’s regulatory environment. If passed, Senate Bill 1751 would cap compensation for load reductions on the Texas power grid during emergency situations.
The risk of recession grows in the face of interest rate rises
Recession risk increased after US jobless claims for the week ending March 25 were revised to 246,000; 48,000 more than in the initial report.
On the other hand, Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), declared on April 6 that the economies of the United States and Europe should continue to experience difficulties, as the rise in interest rates weighs on demand.
Regarding the banking crisis, Georgieva advised central banks to continue raising interest rates, adding that “concerns remain about the vulnerability that may be hidden, not only in banks, but also in non-banks; not now It’s time for complacency.”
On the other hand, on April 6, the President of the Federal Reserve Bank of St. Louis, James Bullard, played down concerns about the impact of financial tensions on the economy. Bullard stated that the Fed’s reaction to the weakness in the banking sector was “swift and appropriate” and that “monetary policy may continue to put downward pressure on inflation.”
Let’s take a look at derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
BTC Price Derivatives Reflect Neutral Trader Sentiment
Margin markets offer insight into how professional traders are positioned, as they allow investors to borrow cryptocurrencies to leverage their positions.
For example, exposure can be increased by borrowing stablecoins and buying Bitcoin. On the other hand, Bitcoin borrowers can only short bet against the price of the cryptocurrency.
The chart above shows that the margin lending ratio of OKX traders has held close to 28x in favor of BTC buyers over the past week. If those whales and market makers had perceived higher risks of a price correction, they would have lent Bitcoin to short, sending the indicator below 20x.
Professional traders’ net long to short ratio excludes externalities that might have affected only margin markets. Analysts can better understand whether professional traders are biased higher or lower by aggregating positions in spot, perpetual and quarterly futures contracts.
Since there are some methodological differences between different exchanges, viewers should focus on the changes and not the absolute numbers.
Between April 1 and 7, the ratio of long to short positions for Binance professional traders slightly decreased from 1.17 to 1.09. Meanwhile, on Huobi, the ratio of long to short positions for professional traders has been hovering around 1.0 since March 18. More specifically, the ratio dropped from 1.00 on April 1 to 0.95 on April 7, therefore relatively balanced between long and short positions.
Finally, the OKX whales showed a very different pattern, as the indicator dipped from 1.25 on April 3 to a low of 0.69 on April 5, strongly favoring net short positions. Such traders reversed the trend, aggressively buying Bitcoin using leverage over the past two days as the long-short ratio returned to 0.97.
The absence of short Bitcoin positions is a bullish indicator
In essence, both the spread and futures markets for Bitcoin are currently neutral, which should be interpreted positively given that Bitcoin price rallied 41.5% between March 10-20 and was able to hold the USD level. 28,000.
Given the enormous regulatory uncertainty caused by the SEC’s Wells Notice against Coinbase on March 22, the absence of short positions using the margin and futures markets currently favors further price rises.
Unless the economic crisis unfolds faster than anticipated, inflation will remain a major concern for investors, and Bitcoin inflows should be enough to hold $28,000 as a resistance level.
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