This week Bitcoin (BTC) rallied to its 2023 high at $23,100 and the move followed a significant recovery in the traditional markets, especially the technology-driven Nasdaq Composite Index, which gained 2.9% on January 20.
Economic data continues to raise investors’ hopes that the United States Federal Reserve will reduce the pace and length of interest rate hikes. For example, sales of pre-owned homes fell 1.5% in December, the 11th consecutive decline after high mortgage rates in the United States dampened demand.
On January 20, Google announced that 12,000 workers were laid off, more than 6% of its global workforce. Bad news continues to trigger buying activity in risk assets, but Dubravko Lakos-Bujas, head of US equity strategy at JPMorgan, expects weaker earnings guidance to “put downward pressure” on the stock market.
Fears of recession increased on January 20 after Federal Reserve Governor Christopher Waller said that a mild recession should be tolerated if it is meant to bring inflation down.
Some analysts have pegged the results of Bitcoin to Digital Currency Group filing for Chapter 11 bankruptcy protection – allowing Genesis Capital to seek reorganization of debt and business activities. More importantly, however, the move reduces the risk of a fire sale in Grayscale Investments’ assets, including the $13.3 billion trust fund Grayscale GBTC.
Let’s take a look at derivative metrics to better understand how professional traders are positioned in current market conditions.
Margin Bitcoin longs down after pump to $21,000
The margin market provides insight into the positions of professional traders as it allows investors to borrow cryptocurrency to leverage 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 deal with its falling value. Unlike futures contracts, the balance between long and short margins is not always optimal.
The chart above shows that the OKX trader’s margin credit ratio increased from January 12 to January 16, signaling that professional traders increased their long leverage while Bitcoin gained 18%.
However, the indicator reversed the trend as the influence was very large, 35 times greater for buying activity on January 16, retreating to neutral-to-bullish levels on January 20.
Currently at 15, the metric favors stablecoin borrowing by a wide margin and indicates that shorts are not confident about building a bearish leveraged position.
Still, the data doesn’t explain whether pro traders are becoming less bullish or deciding to reduce leverage by putting in additional margin. Therefore, one should analyze the options market to know if the sentiment has changed.
Options traders are neutral despite the recent rally
A 25% delta skew is a sign that arbitrage tables and market makers are charging for upside or downside protection.
The indicator compares the same call (buy) and put (sell) options and will be positive when fear is prevalent because the premium of the protective put option is higher than the risky call option.
In short, the tilt metric will move above 10% if traders fear a Bitcoin price crash. On the other hand, general happiness shows a 10% negative skew.
As shown above, the 25% delta skew reached its lowest level in more than 12 months on January 15. Options traders end up paying a premium for bullish strategies rather than the other way around.
Related: Genesis bankruptcy case scheduled for first hearing
Now, at minus 2%, the delta skew signals that investors are pricing the same probability for bull and bear cases, which is a little less optimistic than expected considering the recent rally to $22,000.
Derivative data puts the bullish case as buyers using stablecoin margins significantly reduce their leverage and the options market presents equal risk to either side. On the other hand, bears have not yet found a level where they would be comfortable opening a short position by borrowing Bitcoin on the margin market.
Traditional markets continue to play an important role in setting trends, but Bitcoin bulls have no reason to fear that derivative metrics remain healthy.
The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.