Bitcoin (BTC) price reacted mixedly on Jan. 25 after the US reported a slightly better-than-expected 2.9% gross domestic product (GDP) growth in the fourth quarter. Still, the sum of all goods and services commoditized between October and December increased by less than 3.2% from the previous quarter.
Another data set limiting investor confidence is that the US Federal Reserve may not immediately reverse contraction measures after US durable goods orders surged 5.6% in December. That was it. The indicator was much higher than expected, which could mean interest rates could rise a bit longer than expected.
Crude oil prices also remain on the investor’s radar, with the West Texas Intermediate (WTI) nearing its highest level since mid-September and currently trading at $81.50. The underlying reason is the escalation of the Russian-Ukrainian conflict after the US and Germany decided to send tanks to Ukraine on December 25th.
The US Dollar Index (DXY), which measures the dollar’s strength against a basket of top currencies, remained at 102, close to its lowest level in eight months. This points to low confidence in the Federal Reserve’s ability to keep inflation in check without triggering a deep recession.
Regulatory uncertainty may also have been important in limiting Bitcoin’s rise. On January 26, the Dutch central bank, De Nederlandsche Bank, fined cryptocurrency exchange Coinbase $3.6 million for violating local regulations on financial service providers.
To get a better idea of how professional traders are positioned in the current market conditions, let’s take a look at derivatives indicators.
Bitcoin Margin Longs Rise Slightly
Margin markets provide insight into how professional traders are positioned to help investors leverage their positions by borrowing cryptocurrencies.
For example, you can increase your exposure by borrowing stablecoins and buying bitcoins. Bitcoin borrowers, on the other hand, can only short the cryptocurrency as they are betting that the price will fall. Unlike futures contracts, the balance between long and short margins is not always the same.
The chart above shows that the OKX trader’s margin lending ratio increased slightly from Jan. 20 to Jan. 20, long after Bitcoin broke the $21,500 resistance to the professional level. It shows that the trader has added leverage.
Some might argue that demand for borrowing stablecoins for bullish positioning is much lower than the levels seen in early January. However, margin lending ratios above 30 for stablecoins/BTC are rare and usually overly optimistic.
More importantly, the current indicator of 17 is strongly in favor of stablecoin borrowing, indicating a lack of confidence in building a bearish leveraged position.
Options traders cheat with optimism bias
Traders should also analyze the options market to understand if the recent rally is making investors more risk averse. A delta skew of 25% is a sign that arbitrage desks and market makers are overcharging for upside or downside protection.
This indicator compares similar call (buy) and put (sell) options and is positive when fear is prevalent as the premium for protective put options is higher than for risky call options.
In other words, if traders fear a crash in the Bitcoin price, the skew indicator will exceed 10%. On the other hand, generalized excitement reflects a negative 10% bias.
The 25% delta skew was caught in an optimistic bias on January 21, when the metric hit the minus 10 threshold. This move coincides with his BTC price rise of 11.5% followed by his rejection at $23,375. Since then, options traders have become more averse to unexpected price declines.
RELATED: Here’s Why Bitcoin’s Price Will Correct After U.S. Government Solves Debt Limit Impasse
Currently, the near-zero delta skew indicates that investors are pricing similar risks downwards and upwards. So while the lack of demand from margin traders shorting bitcoin seems promising on the one hand, at the same time options his traders weren’t confident enough to be optimistic.
The longer Bitcoin stays above $22,500, the higher the risk for those betting on the BTC price going down (short). Still, traditional markets continue to play a key role in setting trends, so the chances of another price rally are slim ahead of his Fed decision on Feb. 1.
The views, thoughts and opinions expressed herein are those of the authors only and do not necessarily reflect or represent the views or opinions of Cointelegraph.
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making decisions.
