The Bitcoin (BTC) price had a mixed reaction on Jan. 25 after the United States reported gross domestic product growth of 2.9% in the fourth quarter, 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 set of data that dampened investor sentiment was the news that the US Federal Reserve (FED) would reverse its tightening measures at any time, as US durable goods orders fell. increased by 5.6% in December. The indicator came in much higher than anticipated, so it could mean that interest rates could rise by a bit more than expected.
Oil prices also continue to be a focus for investors, with WTI crude nearing its highest level since mid-September, currently trading at $81.50. The underlying reason is the escalation of the conflict between Russia and Ukraine after the United States and Germany decided on December 25 to send 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 causing a significant recession.
Regulatory uncertainty could also have been vital in limiting Bitcoin’s upside potential. De Nederlandsche Bank, the Dutch central bank, fined cryptocurrency exchange Coinbase $3.6 million due to failure to comply with local regulations for financial service providers; the news was published on January 26.
Let’s look at derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Bitcoin Long Margins Increase Slightly
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 chart above shows that OKX Traders’ Margin Lending Index rose slightly on Jan 20-20, indicating that professional traders added leverage long after Bitcoin broke above the $21,500 resistance.
It could be argued that the demand for stablecoin borrowing for bullish positioning is much less than the levels seen in early January. However, a stablecoin/BTC margin lending ratio greater than 30 is unusual and typically overly optimistic.
More importantly, the current metric at 17 favors stablecoin borrowing by a wide margin and indicates that shorts are not confident in building bearish leveraged positions.
Options traders flirt with an optimistic bias
Traders should also analyze the options markets to understand if the recent rally has caused investors to become more risk averse. 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%.
The 25% delta bias flirted with the bullish bias on Jan. 21 when the indicator hit the minus 10 threshold. The move coincides with BTC’s 11.5% price rise and subsequent rejection to $23,375. since then, options traders have increased their risk aversion for unexpected price dumps.
Related: Here’s Why Bitcoin Price Could Correct After US Government Resolves Debt Limit Deadlock
Currently near zero, the delta bias 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 turn 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.
The views, thoughts and opinions expressed here are those of the authors alone 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 a decision.
