Bitcoin (BTC) traders continued to be under lower pressure after the 5.5% price drop on March 7. Increased odds of further interest rate hikes by the Federal Reserve and regulatory pressure on cryptocurrencies explain part of the move.
Financial markets showed signs of stress as the inverted bond curve reached its highest level since the 1980s. Long-term yields have been stuck at 4%, while two-year Treasuries traded above a 5% yield in March.
Since July, longer-term Treasury yields have been unable to keep pace with the rally in the two-year benchmark, leading to the inverted curve distortion that often precedes economic downturns. According to Bloomberg, the gauge hit 1 percentage point on March 7, the highest level since 1981, when Federal Reserve Chairman Paul Volcker faced double-digit inflation.
This week BlackRock, the world’s largest asset manager, raised its forecast for US federal funds to 6%. Rick Riede, BlackRock’s chief investment officer in global fixed income, believes the Fed will keep interest rates high for “an extended period to slow the economy and get inflation closer to 2%.”
Fears of cryptocurrency regulation grow
According to a Wall Street Journal report, the Biden administration wants to apply the fictitious sell rule to cryptocurrencies, which would end a strategy in which a trader sells and then immediately buys digital assets in order to incur losses and reduce your tax burden.
In addition, the Public Company Accounting Oversight Board (PCAOB), the body that oversees audits of public companies in the United States, recently issued a warning to investors about the test reserves reports sent by auditing companies.
The organization, backed by the US Securities and Exchange Commission (SEC), noted that: “investors should note that PoR reports are not audits and, accordingly, PoR reports do not provide any guarantee significant”.
Let’s look at derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Bitcoin margin markets are back on track
Margin markets offer insight into how professional traders are positioned, as they allow investors to borrow cryptocurrency to leverage their positions.
For example, exposure can be increased by borrowing stablecoins and buying Bitcoin. Bitcoin borrowers, on the other hand, can only short the cryptocurrency.
The chart above shows that OKX traders’ margin lending ratio fell sharply on March 9, moving away from a situation that previously favored leveraged long positions. Given the general bullishness of cryptocurrency traders, the current margin lending ratio of 16 is relatively neutral.
On the other hand, a margin lending ratio greater than 40 is very rare, although it has been the norm since February 22. This is partly due to a high stablecoin borrowing cost of 25% per year. Following the recent anomaly, the margin market has returned to a state between neutral and bullish.
Options traders are pricing in a low risk of extreme price corrections
Traders should also check the options markets to see if the recent correction has caused investors to become more risk averse. The 25% delta slope is a tell-tale sign whenever arbitrage desks and market makers charge more for upside or downside protection.
The indicator compares similar call and put options and will turn positive when fear prevails, as the premium for protection puts is greater than the premium for risky calls.
Simply put, if traders anticipate a fall in the price of Bitcoin, the bias metric will rise above 10% and the general hype will read -10%.
Despite Bitcoin failing to break the $25,000 resistance on Feb 21 and then experiencing a 14% 16-day correction, the 25% slope of the options delta remained in the neutral zone for the month. past. The current positive slope of 3% indicates a balanced demand for bullish and bearish option instruments.
Derivatives data shows that professional traders are unwilling to be bearish, as evidenced by option traders’ risk-neutral pricing. Additionally, the lending margin ratio indicates that the market is improving as some demand for short bets has emerged, but the structure remains between neutral and bullish.
Given the enormous downward pressure on prices from a macroeconomic standpoint, as well as continued regulatory pressure in the United States, bulls should probably be pleased that Bitcoin derivatives have remained strong.
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