The price of Bitcoin (BTC) rose 28% between March 12 and 14, reaching $26,500, its highest level since June 2022. Some may attribute the gains to the 6% year-over-year increase in the price index to Consumer Index (CPI) in February, although the figure was in line with expectations.
The inflation metric reached its lowest level since September 2021, which is a positive development, but does not validate the Federal Reserve’s attempt to lower the metric to 2%. Risk markets such as stocks and cryptocurrencies most likely spiked after regional bank shares rallied from their March 13 lows.
As of 10:30 am ET, First Republic Bank (FRC) shares were trading 54% higher, followed by Western Alliance Bancorporation (WAL) at 46% and KeyCorp (KEY) at 15%. The average 30-year mortgage rate decreased to 6.6% from 7.1% on March 7. Consequently, reduced mortgage rates have the potential to improve the housing market, which partly explains the rally.
The unexpected drop in mortgage rates may present an opportunity for price-sensitive homebuyers and homeowners waiting for a chance to lock in a lower rate. According to Realtor.com data, a median-priced homebuyer still faced a 49% higher monthly mortgage payment than the previous year.
Despite the possibility of a recession in the United States due to high interest rates, China’s economic outlook remains positive. Li Qiang addressed reporters on March 14 for the first time since he took oversight of the State Council, China’s top executive body. According to Qiang, non-state enterprises in China willpower They have more room for development.
Let’s look at derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Bitcoin Margin Markets Signal a Market Failure
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 and buying Bitcoin. On the other hand, Bitcoin borrowers can only short bet against the cryptocurrency.
Since March 13, the OKX traders’ margin lending ratio has been above 35, indicating a significant mismatch in favor of Bitcoin longs. Readings above 40 are rare and are driven by the stablecoin’s high borrowing cost of 25% per year.
One should check the BTC options markets to confirm if professional traders are indeed expecting further price increases.
Options traders are far from enthusiastic
Traders should also analyze the options markets to understand if the recent correction has caused investors to become less 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 premium for protective puts is higher than the premium for risky calls.
In short, if traders anticipate a fall in the price of Bitcoin, the bias metric will rise above 8% and general enthusiasm will be biased negative by 8%.
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On March 13, when Bitcoin broke above the $22,000 resistance level, the leading indicator of BTC options risk broke out of the fear zone that had been in place for three days. Since option traders assigned the same risk assessment to bullish and bearish strategies, the 25% delta bias entered a neutral zone.
However, it would be incorrect to conclude that the 5% negative bias seen briefly on March 14 indicates excessive optimism or bullishness. Analysts and pundits often rush and celebrate quick reversals, but anything between -8% and +8% remains in the neutral zone.
Consistent with the price of options contracts, derivatives data indicates that professional traders held their long positions using margin markets and abandoned their bearish stance on March 13. Given the improvement in macroeconomic market conditions, Bitcoin bulls are well positioned to push the price above $26,000.
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.
