The Bitcoin (BTC) price had a mixed reaction on Jan. 25 after the United States reported 2.9% gross domestic product growth in the fourth quarter of 2022, slightly better than expected. Even so, the sum of all goods and services traded between October and December grew less than 3.2% compared to the previous quarter.
Although somewhat optimistic, another piece of data that limited investor confidence was the news that the US Federal Reserve (FED) would soon reverse its contractionary measures, as durable goods orders rose 5.6% in December. The indicator was much higher than expected, so it could mean that interest rates could rise for a bit longer than expected.
Oil prices also remain in the crosshairs of investors, with WTI crude nearing its highest level since mid-September, currently trading at $81.50. The underlying motive is the escalation of the conflict between Russia and Ukraine, after the United States and Germany decided on December 25 to send main battle tanks to Ukraine.
The US dollar index (DXY), a measure of the dollar’s strength against a basket of major foreign currencies, held at 102, near its lowest levels in eight months. This indicates little confidence in the US Federal Reserve’s ability to curb inflation without triggering a significant recession.
Regulatory uncertainty could also have been vital in limiting Bitcoin’s rise. De Nederlandsche Bank, the Dutch central bank, fined cryptocurrency exchange Coinbase $3.6 million for breaching local regulations for financial service providers – the news was made public on Jan. 26.
Let’s take a look at derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Long Bitcoin Margin Positions Increase Slightly
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 to buy Bitcoin. On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet on its price falling. Unlike futures contracts, the balance between long and short margins is not always the same.
The above chart shows that OKX traders’ margin lending ratio increased slightly from Dec 20 to Jan 20, indicating that professional traders added leverage long after Bitcoin broke above the $21,500 resistance. .
It could be argued that the demand for stablecoin lending for bullish positioning is much lower than the levels seen in early January. However, a stablecoin/BTC margin lending ratio above 30 is unusual and typically overly optimistic.
More importantly, the current metric of 17 favors stablecoin lending by a wide margin and indicates that shorts are not confident in opening bearish leveraged positions.
Options traders flirt with an optimistic delta
Traders should also look at the options markets to understand if the recent rally has caused investors to become more risk averse. The 25% slope of the options delta is a telltale sign when arbitrage desks and market makers are overcharging for upside or downside protection.
The indicator compares similar put and call options and turns positive when fear prevails because the protection premium for put options is higher than for risky call options.
In short, the bias metric will move above 10% if traders fear a Bitcoin price crash. On the other hand, the generalized hype reflects a reading of -10%.
The 25% slope of the delta flirted with optimistic levels on January 21, when the indicator reached the -10% threshold. The movement coincides with the 11.5% rise in the price of BTC and its subsequent rejection at USD 23,375. Thereafter, options traders increased their risk aversion to unexpected price declines.
Currently near zero, the slope of the delta indicates that investors are pricing in similar downside and upside risks. So on the one hand, the lack of demand from margin traders willing to short Bitcoin looks promising, but at the same time, options traders were not confident enough to be bullish.
The longer Bitcoin stays above $22,500, the riskier it becomes for those betting on the BTC price drop (shorts). Still, traditional markets continue to play an essential role in setting the trend, so the chances of another price hike before the Fed’s February 1 decision are slim.
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