The Bitcoin (BTC) price had a mixed reaction on Dec. 9 after the November report on US producer prices showed a 7.4% increase compared to 2021. The data suggested that costs wholesalers continued to rise and that inflation could last longer than investors previously believed. Oil prices also continue to be a focus for investors, with WTI crude hitting a new yearly low of $71.10 on December 8.
The US dollar index (DXY), a measure of the dollar’s strength against a basket of major foreign currencies, held the 104.50 level, but the index traded at 104.10, a 5-month low on December 4th. This indicates low confidence in the US Federal Reserve’s ability to curb inflation without causing a significant recession.
Trader @gutsareon noted that the choppy activity caused leverage longs and shorts to be liquidated, but it was followed by a failed tentative dump below USD 17,050.
good study case
first late shorts got taken out on the push..then late longs on the flush…then longs again on the PPI number…then shorts again…then a “unusual” low with little to no change in OI
roller coaster pic.twitter.com/Qju1eOuNMX
—Peter (@gutsareon) December 9, 2022
According to the analysis, the stagnation of open interest in futures contracts indicated low confidence from bears.
Regulatory uncertainty could have played a key role in limiting Bitcoin’s upside potential. On Dec. 8, the United States Securities and Exchange Commission (SEC) issued new guidance that could cause publicly traded companies to disclose their exposure to crypto assets.
The SEC’s Division of Corporate Finance said that the recent crisis in the crypto-asset industry has “caused widespread disruption” and that US companies may have disclosure obligations under federal securities laws to disclose whether these events could affect your business.
Let’s look at derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Bitcoin Margin Longs Faced a Drastic Rise
Margin markets provide information on how professional traders are positioning because it allows investors to borrow cryptocurrencies to take advantage of their positions.
For example, one can increase exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only short the cryptocurrency as they are betting on its price going down. Unlike futures contracts, the balance between long and short spreads does not always match.
The above chart shows that OKX Traders Margin Loan Index increased from Dec 4 to Dec 9, indicating that professional traders increased their leveraged longs even after multiple failed attempts to breach the $17,300 resistance.
Currently at 35, the metric favors stablecoin lending by a wide margin and indicates that shorts are not confident in building bearish leveraged positions.
Options traders remain risk averse
Traders need to analyze the options markets to understand if Bitcoin will eventually succumb to the bearish news flow. The 25% delta bias is a tell-tale sign any time arbitrage desks and market makers overcharge for upside or downside protection.
The indicator compares similar call and put options and will turn positive when fear prevails because the protective premium on put options is higher than risky call options.
In short, the bias metric will move above 10% if traders fear a Bitcoin price drop. On the other hand, the general enthusiasm reflects a negative bias of 10%.
As shown above, the 25% delta bias improved between December 4-9, showing that options traders reduced their risk aversion from unexpected price dumps. However, at the current 15%, the delta bias indicates that investors remain apprehensive because market makers are less included in the fall protection offering.
On one hand, the lack of open interest rising when Bitcoin tested the intraday low on Dec. 9 looks encouraging. Still, excessive use of margin indicates that buyers may be forced to reduce their positions during unexpected downsides.
The longer Bitcoin takes to rally $18,000, the riskier it becomes for leveraged margin longs. Traditional markets continue to play an essential role in setting the trend, so a potential retest to $16,000 cannot be ruled out.
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