On February 1-2, the price of Bitcoin (BTC) beat even the most bullish price forecasts after the US Federal Reserve (FED) announced plans to raise interest rates another 25 basis points.
Although Fed Chairman Jerome Powell told investors not to expect interest rate cuts in 2023, he made it clear during his press conference that jobs data is currently the main focus of attention.
Results from the ADP Payroll Survey on February 1 revealed that hiring in the US private sector was significantly slower in January. The ADP measure of private sector payrolls was 106,000, well below the market consensus of 160,000 payrolls. These data fueled investor expectations regarding future interest rate hikes by the Federal Reserve.
After testing the $22,500 support on February 1, Bitcoin gained 6.5% in five hours and has been flirting with the $24,000 level ever since. While the recent gains are exciting, traders should keep in mind that the improvement in cryptocurrency market sentiment followed the risk-on attitude seen in traditional markets.
Stocks with negative operating margin posted significant gains on February 2, including Coinbase (COIN) 20%, Cloudflare (NET) 15%, Unity Software (U) 12% and DoorDash (DASH) 10%. That factor alone should be a warning sign that the gains of the past few weeks may not be sustainable. It’s also important to remember that Bitcoin’s 40-day correlation to the S&P 500 remains above 75%.
Potential regulatory headwinds could also have played a vital role in supporting Bitcoin’s rise. Huang Yiping, a former member of the People’s Bank of China (PBoC) Monetary Policy Committee, recently stated that a permanent ban on cryptocurrencies could cause many opportunities to be lost.
Huang, now a professor of economics at Peking University’s National Development School, criticized Bitcoin for lacking intrinsic value, but noted that cryptocurrency-related technologies are “very valuable” to regulated financial systems.
Let’s take a look at derivatives metrics to understand if professional traders added leveraged positions after the recent Bitcoin price breakout.
Bitcoin margin traders heat $22,500 support
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 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 positions does not always match.
The above chart shows that OKX traders’ margin lending ratio increased sharply on Jan. 30, indicating that professional traders added leverage long after Bitcoin successfully bounced off the $22,500 support.
More importantly, Jan. 29 marked the indicator’s lowest level in over eleven weeks in 13 favoring stablecoin lending by a wide margin – indicating that shorts are not confident in building bearish leveraged positions. Currently at 24, it is clearly evident that the bears are getting more comfortable with the current support of $22,500.
Options traders flirt with an optimistic bias
Traders should also watch the options markets to see if the recent rally has caused investors to become more risk averse. The 25% skew of the options delta is a telltale sign that 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 drop. On the other hand, the generalized hype reflects a bias of -10%.
The options’ 25% delta bias has remained relatively calm near -5%, suggesting equal odds to the upside and downside. On the bright side, not even the retest of $22,500 on Jan. 31 was enough to break the bulls’ spirits. Combined with a lack of demand from margin traders willing to short Bitcoin, the derivatives markets paint a bullish picture.
Even if it takes a bit longer (maybe a couple of days) to break above $24,000, there are no signs of stress in the Bitcoin options and margin markets. However, traditional markets still play a vital role in setting the trend, so Bitcoin investors should not be overconfident.
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