Leverage

Bitcoin holds $30K, but some pro traders are skeptical about BTC price continuation

BTC traders are cautiously optimistic due to Bitcoin traditional assets, but there are still some macro headwinds to be aware of.

Bitcoin (BTC) price has finally broken the $30,000 level after the key price zone lasted as a ten months resistance level. BTC price rallied 6.5% on April 10 and the much-awaited price gain ended an agonizing 12-day period of extremely low volatility, which saw the price hovering close to $28,200. Bulls are now confident that the bear market has officially ended, especially considering the fact that BTC price has gained 82% year-to-date.

Another interesting note is that Bitcoin’s decoupling from traditional markets has been confirmed after the S&P 500 index presented a mere 0.1% gain on April 10, and West Texas Intermediate (WTI) oil traded down 1.2%. Bitcoin traders are likely anticipating the Federal Reserve’s interest rate policy to reverse sooner than later.

Stagflation risk could be behind the decoupling

Higher interest rates make fixed-income investments more attractive, while businesses and families face additional costs to refinance their debts. The reversal of the U.S. central bank’s recent tightening movement is deemed bullish for risk assets. However, the fear of stagflation — a period of increased inflation and negative economic growth — would be the worst-case scenario for the stock market.

Fixed-income traders are betting that the Federal Reserve probably has one more interest-rate hike because the latest economic data displayed moderate resilience. For instance, the 3.5% U.S. unemployment rate announced on April 7 is the lowest measure in half a century.

The U.S. treasuries market suggests a 76% chance that the Federal Reserve will bolster the benchmark by 0.25% on April 29, according to Bloomberg. There’s also the added uncertainty of the banking crisis’s impact on the sector, with JPMorgan Chase, Wells Fargo and Citigroup scheduled to report first-quarter results on Friday.

Bitcoin’s rally above $30,000 could be the first evidence of a shift in investors’ perception from a risk market proxy to a scarce digital asset that might benefit from a period of inflation pressure and weak economic growth.

Two critical factors will determine whether the rally is sustainable: the high leverage usage increasing the odds of forced liquidations during normal price fluctuations, and whether or not pro traders are pricing higher odds of a market downturn using options instruments.

Bitcoin futures show modest improvement

Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.

As a result, futures contracts in healthy markets should trade at a 5-to-10% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Bitcoin 2-month futures annualized premium. Source: Laevitas.ch*

Bitcoin traders have been cautious in the past few weeks, and even with the recent breakout above $30,000, there has been no surge in demand for leverage longs. However, the Bitcoin futures premium has slightly improved from its recent low of 3% on April 8 to its current level of 4.2%. This suggests that buyers are not using excessive leverage and there is effective demand on regular spot markets, which is healthy for the market.

Bitcoin option traders remain neutral

Traders should also analyze options markets to understand whether the recent correction has caused investors to become more optimistic. The 25% delta skew is a telling sign when arbitrage desks and market makers overcharge for upside or downside protection.

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 7%, and phases of excitement tend to have a negative 7% skew.

*Bitcoin 60-day options 25% delta skew: Source: Laevitas.ch*

Currently, the options delta 25% skew has shifted from a balanced demand between call and put options on April 9 to a modest 4% discount for protective puts on April 10. While this indicates a slight increase in confidence, it is not enough to break the 7% threshold for moderate bullishness.

In essence, Bitcoin options and futures markets suggest that pro traders are slightly more confident, but not excessively optimistic. The initial decoupling from traditional markets is promising because investors are showing confidence that crypto markets will benefit from higher inflationary pressure and it highlights traders’ belief the Fed can no longer continue raising interest rates.

The views, thoughts and opinions expressed here are 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 conduct their own research when making a decision.

Crypto market momentum stalls as traders await the results of recent regulatory actions

Crypto’s bullish momentum may stall at the $1.2 trillion total market cap resistance, but traders’ newfound caution has not translated to excessive demand for short positions.

Cryptocurrency markets have been trading within an unusually tight 5% range since March 17 as conflicting forces continue to pressure the sector. Consequently, in the past seven days, the total market capitalization gained 3.8%, which was driven mainly by Bitcoin’s (BTC) 3.6% price increase and Ether’s (ETH) 5% gain.

*Total crypto market cap in USD, 12-hour. Source: TradingView*

On March 27, the United States Commodity Futures Trading Commission sued Binance and Changpeng “CZ” Zhao for allegedly violating trading and derivatives rules, heightening regulatory uncertainty. According to the lawsuit, Binance provided access to leverage for customers trading on the spot and futures markets.

The announcement came just five days after Coinbase received a Wells notice from the U.S. Securities and Exchange Commission, which could target the exchange’s staking program, listed digital assets, wallet and Coinbase Prime services.

Similar actions also occurred outside the U.S., with Japan’s Financial Services Agency (FSA) announcing on March 31 that several foreign cryptocurrency exchanges, including Binance, Bybit, MEXC Global and Bitget, had been operating in the country without proper registration, in violation of the country’s laws.

The lateralization trend that began in mid-March has repeatedly tested the crypto market’s $1.14 trillion market capitalization support. The movement suggests that investors are hesitant to place new bets until more information on the lawsuits against Binance and Coinbase is available.

Risk markets benefited from the inflationary pressure

The global banking crisis forced the Federal Reserve to use two different emergency lending programs. As a result, the Swiss National Bank provided more than $100 billion in liquidity to absorb the impact of Credit Suisse and its subsequent sale to UBS. Stocks and commodities have benefited as traditional finance investors seek alternatives to protect against inflation.

Stocks and commodities have benefited as traditional finance investors seek alternatives to protect against inflation. Since March 15, the S&P 500 index has risen 6.6%, gold has risen 4.6% and oil prices have gained 18.6%. As a result, there are compelling arguments for both an upward and downward trend within the lateral channel, which currently limits crypto’s total capitalization at $1.2 trillion.

Derivatives show mixed trends, but no use of excessive leverage

Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours. Exchanges use this fee to avoid exchange risk imbalances.

A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to turn negative.

*Perpetual futures accumulated 7-day funding rate on April 3. Source: Coinglass*

The seven-day funding rate for Bitcoin and Ether was neutral, indicating balanced demand from leverage longs (buyers) and shorts (sellers) using perpetual futures contracts.

Traders can gauge the market’s sentiment by measuring whether more activity is going through call (buy) options or put (sell) options. Generally speaking, call options are used for bullish strategies, whereas put options are for bearish ones.

A 0.70 put-to-call ratio indicates that put options open interest lags the more bullish calls and is, therefore, bullish. In contrast, a 1.40 indicator favors put options, which can be deemed bearish.

*BTC options volume put-to-call ratio. Source: Laevitas*

The put-to-call ratio for Bitcoin options volume increased to its highest level since March 9, indicating an excess of demand for neutral-to-bearish puts. This is the inverse of what happened on April 1, when call options were in higher demand.

Traders are pricing low odds of a break above $1.2 trillion

The market is pricing higher odds of downside in the derivatives market. However, given the balanced demand on futures markets, traders are hesitant to place additional bets until regulators’ actions are clearer. It is unclear whether the total market capitalization will be able to break through the $1.2 trillion barrier, but professional traders are not currently betting on it.

From a derivatives market perspective, traders are pricing higher odds of downside. However, considering the balanced demand on futures markets, investors are uncomfortable placing further bets until there’s a clearer picture of regulators’ actions.

Uncertainty exists as to whether the total market capitalization will be able to surpass the $1.2 trillion barrier, but professional traders are currently not betting on this outcome.

The views, thoughts and opinions expressed here are 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 conduct their own research when making a decision.

Why did 12K Bitcoin margin longs close at Bitfinex, and why didn’t it impact BTC price?

An unprecedented number of BTC margin longs recently closed at Bitfinex, leaving analysts searching for explanations.

Since May 2022, the Bitcoin (BTC) margin markets on the Bitfinex exchange have been plagued by an unusually high open interest of over $2.7 billion. This information alone should raise a red flag, especially considering Bitcoin’s price decline from $39,000 to less than $25,000 during the same period.

Traders seeking to leverage their cryptocurrency position had borrowed over 105,000 Bitcoin. Currently, the cause of this anomaly and the number of entities involved in the trade are unknown.

Cheap borrowing favors high demand

Bitfinex’s sub-0.1% annual rate may contribute to the size of the Bitcoin lending market. To date, this has been the norm, creating enormous incentives for borrowing, even if there is no current need. Few traders would turn down such a ridiculously inexpensive leverage opportunity.

Margin borrowing can be used to take advantage of arbitrage opportunities, where a trader exploits price discrepancies between different markets. For example, borrowing Bitcoin on margin allows a trader to take a long position in one market and a short one in another, profiting from the price difference.

To understand how Bitcoin borrowing can be used to profit on derivatives markets, including those outside of Bitfinex, one must understand the distinction between futures contracts and margin markets. The margin is not a derivative contract, so the trade occurs on the same order book as spot trading. In addition, unlike futures, margin longs and shorts are not always in balance.

For example, after purchasing 10 Bitcoin using margin, the coins can be withdrawn from the exchange. Naturally, the trade, typically based on stablecoins, requires some form of collateral or a margin deposit.

If the borrower fails to return the position, the exchange will liquidate the margin to repay the lender.

Additionally, the borrower must pay interest on the BTC acquired with a margin. The operational procedures vary between centralized and decentralized exchanges, but the lender typically determines the interest rate and duration of offers.

There was a 12,000 BTC margin decline in a single trade

Historically, Bitfinex margin traders have been known to move large margin positions quickly, indicating the participation of whales and large arbitrage desks. In the most recent instance, on March 25, those investors reduced their long positions by 12,000 BTC in minutes.

*Bitfinex BTC margin longs, in BTC contracts. Source: TradingView*

Notice the significant decrease, although it did not affect the Bitcoin price. This supports the theory that such margin trades are market-neutral because the borrower is not leveraging their positions with the proceeds. Most likely, there is some arbitrage involving derivatives instruments.

Traders should cross-reference the data with other exchanges to confirm that the anomaly affects the entire market, given that each exchange has distinct risks, norms, liquidity and availability.

OKX, for example, provides an indicator for margin lending based on the stablecoin/BTC ratio. Traders can increase their exposure on OKX by borrowing stablecoins to purchase Bitcoin. Bitcoin borrowers, on the other hand, can only wager on the price decline.

*OKX stablecoin/BTC margin lending ratio. Source: OKX*

The above chart shows that OKX traders’ margin lending ratio has been stable for the past week near 30, indicating that professional traders’ long-to-short bets have not changed. This data supports the theory that Bitfinex’s decline is due to an arbitrage close unrelated to Bitcoin price movement.

Recent crypto bank closures could have triggered the movement

Another possibility for the sudden decrease in margin demand is the $4 billion deposits associated with the now-defunct Signature Bank. Crypto clients were told to close their accounts by April, according to a Bloomberg report.

While New York Community Bancorp (NYCB) purchased the majority of Signature Bank’s deposits and loans on March 19, the deal with the Federal Deposit Insurance Corporation did not include crypto-related accounts.

If those whales are forced to close their banking accounts, they will most likely reduce their arbitrage positions, including those in margin markets. For the time being, all assumptions are speculative, but one thing is sure: the 12,000 BTC long margin reduction at Bitfinex did not affect Bitcoin prices.

The views, thoughts and opinions expressed here are 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 conduct their own research when making a decision.

Bitcoin bulls remain bullish, but macro and crypto-specific hurdles have BTC pinned below $30K

All the pieces are in place for BTC to rally to $30,000, but escalating economic uncertainty and regulatory pressure add strength to the key resistance level.

On March 23, Bitcoin (BTC) price recovered the $28,000 support after a brief correction below $27,000. The movement closely tracked the traditional financial sector, particularly the tech-heavy Nasdaq Index, which gained 2.1% as Bitcoin surpassed the $28,000 threshold.

On March 22, the Federal Reserve raised its benchmark interest rate by 0.25% but hinted that it is nearing its maximum level for 2023. In the end, however, Fed Chair Jerome Powell stated that it is too soon to determine the extent of the tighter credit conditions, so monetary policy will remain flexible.

Initially, it appears encouraging that the central bank is less inclined to increase the cost of money. However, global economies are exhibiting signs of stress. For instance, consumer confidence in the euro area decreased by 19.2% in March, reversing five consecutive months of gains and defying economists’ predictions of an improvement.

The recession is still putting pressure on companies’ profits and leading to layoffs. For example, on March 23, professional services company Accenture said it would end the contracts of 19,000 workers over the next 18 months. On March 22, the company Indeed, which helps people find jobs, let go of 2,200 workers, or 15% of its staff.

The stronger the correlation to traditional markets, the less likely a decoupling. As a result, according to futures and margin markets, the Bitcoin price increase has not instilled much confidence in professional traders.

Bulls and bears exhibit a balanced demand on margin markets

Margin trading allows investors to borrow cryptocurrency to leverage their trading position, potentially increasing their returns. For example, one can buy Bitcoin by borrowing Tether (USDT), thus increasing their crypto exposure. On the other hand, borrowing Bitcoin can only be used to bet on a price decline.

Unlike futures contracts, the balance between margin longs and shorts isn’t necessarily matched. When the margin lending ratio is high, it indicates that the market is bullish. The opposite, a low lending ratio, signals that the market is bearish.

*OKX USDT/BTC margin lending ratio. Source: OKX*

On March 15, the margin markets longs-to-short indicator at the OKX exchange peaked at 60, but by March 17, it had fallen to 22. This indicates that during the rally, reckless leverage was not used. Historically, levels above 40 indicate a highly imbalanced demand favoring longs.

The indicator is currently at 19, indicating a balanced situation given the high cost of borrowing U.S. dollars (or stablecoins) to short BTC, which stands at 15%.

Long-to-short data shows reduced demand for leverage longs

The top traders’ long-to-short net ratio excludes externalities that might have solely impacted the margin markets. Analysts can better understand whether professional traders are leaning bullish or bearish by aggregating the positions on the spot, perpetual and quarterly futures contracts.

There are occasional methodological discrepancies between different exchanges, so viewers should monitor changes instead of absolute figures.

*Exchange’s top traders long-to-short ratio. Source: Coinglass*

Between March 18 and March 22, the top traders’ long-to-short ratio at OKX increased, peaking at 1.09, but reversed course on March 23. The indicator is currently at its lowest level in 11 days, at 0.76. Meanwhile, at the Huobi exchange, the top traders’ long-to-short ratio has stood flat near 1.0 since March 18.

Lastly, Binance whales have consistently been reducing their leverage longs since March 17. More precisely, the ratio dropped from 1.36 to 1.09 on March 23, its lowest level in 11 days.

As Bitcoin has gained 13% since March 16, margin and futures markets indicate that whales and market makers were ill-prepared. This may initially appear bearish, but if the $28,000 support level holds, professional traders will likely be compelled to add long positions, further accelerating the bullish momentum.

Bitcoin derivatives ultimately exhibit no signs of stress. Not having excessive leverage on long positions is positive, and bears did not dare to add short positions. Nonetheless, recession risks and growing regulatory uncertainty, such as the United States Securities and Exchange Commission‘s Wells notice against the Coinbase exchange on March 22, will likely keep the price of Bitcoin below $30,000 for a while.

The views, thoughts and opinions expressed here are 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 conduct their own research when making a decision.

Canada bans crypto leverage and margin trading after FTX collapse

Now-bankrupt exchange FTX attempted to enter Canada in June 2022, but local regulators have managed to prevent the mess.

Authorities in Canada are taking measures to better protect Canadian cryptocurrency investors in the aftermath of the FTX collapse and the spreading contagion.

The Canadian Securities Administrators (CSA), the council of Canada’s provincial and territorial securities regulators, on Dec. 13 issued an update to crypto trading platforms operating in the country.

The CSA said that the authority has been reinforcing its approach to the supervision of crypto trading platforms by expanding existing requirements.

According to the statement, all crypto trading firms operating in Canada — both local and foreign ones — have to comply with newly expanded terms, which ban them from offering margin or leverage trading services to any Canadian clients.

The expanded terms also require crypto exchange services providers in Canada to segregate custody assets from the platform’s proprietary business.

“Custodians will generally be considered qualified if they are regulated by a financial regulator in Canada, the U.S., or a similar jurisdiction with a supervisory regime for conduct and financial regulation,” the CSA noted in the statement.

The council emphasized that even with the adoption of these measures, crypto assets or any financial products related to crypto assets are high-risk investments, urging investors to only invest using a platform that is registered with CSA members.

The CSA did not immediately respond to Cointelegraph’s request for comment.

In the new statement, the CSA mentioned its previous communication to crypto trading platforms operating in Canada, issued on Aug. 15, 2022. The authority stated that it expected commitments from unregistered crypto trading platforms operating in Canada while they pursue registration in the form of pre-registration undertaking.

The CSA communication came shortly after FTX entered into an agreement to purchase the Canadian crypto platform Bitvo in June 2022. FTX originally planned to use the acquisition as part of its global expansion plans. However, Bitvo eventually managed to terminate the acquisition by the now-defunct exchange, which allowed the firm to continue operating even after FTX’s collapse.

Bitvo CEO Pamela Draper told Cointelegraph in November that the acquisition wasn’t completed because the firms were working to satisfy the closing conditions, the most significant of which was regulatory approval from the Alberta Securities Commission.

Bitcoin traders cross fingers in hopes that a positive Fed meeting triggers a run to $18K

All eyes are on this week’s Federal Reserve meeting, and BTC traders hope that positive strides against inflation trigger a run to $18,000.

Bitcoin (BTC) failed to break above the $17,250 resistance on Dec. 11 and subsequently faced a 2.2% correction. More importantly, the last daily close above this level was over 30 days ago — reinforcing the thesis of size sellers near the $330 billion market capitalization mark.

Curiously, this valuation level is slightly behind Palladium, the world’s 23rd most valuable traded asset with a $342 billion capitalization. So from one side, Bitcoin bulls have some reasons to celebrate because the price recovered 10% from the $15,500 low on Nov. 21, but bears still have the upper hand on a larger time frame since BTC is down 64% year-to-date.

Two events are expected to determine traditional finance investors’ fate, as the United States consumer price index is expected onDec. 13 and U.S. Federal Reserve chair Jerome Powell will announce the size of the next interest rate hike on Dec. 14. Powell’s press conference will also be anxiously awaited by investors.

In the cryptocurrency markets, there is mild relief stemming from exchanges’ proof of reserves, although several analysts have criticized the limited details of each report.

Derivatives exchange Bybit was the latest addition to the transparency initiative, allowing users to self-verify their deposits using Merkle Trees, according to a Dec. 12 announcement.

However, regulatory risks remain high after U.S. Democrat Senator and crypto-skeptic Jon Tester boldly stated that he sees “no reason why” crypto should exist. During a Dec. 11 appearance on NBC, Tester argued that crypto has no real value, so regulating the sector would give it legitimacy.

Lastly, according to Reuters, the U.S. Department of Justice (DOJ) is nearing the completion of its investigation into Binanceexchange, which started in 2018. The Dec. 12 report suggests a conflict among prosecutors on whether the evidence is enough to pursue criminal charges.

Let’s look at derivatives metrics to better understand how professional traders are positioned in the current market conditions.

The Asia-based stablecoin premium drops to 2-month low

The USD Coin (USDC) premium is a good gauge of China-based crypto retail trader demand. It measures the difference between China-based peer-to-peer trades and the United States dollar.

Excessive buying demand tends to pressure the indicator above fair value at 100% and during bearish markets the stablecoin’s market offer is flooded, causing a 4% or higher discount.

*USDC peer-to-peer vs. USD/CNY. Source: OKX*

Currently, the USDC premium stands at 99%, down from 102.5% on Dec. 3, indicating lesser demand for stablecoin buying from Asian investors. The data gains relevance after the multiple failed attempts to break above the $17,250 resistance.

However, this data should not necessarily be bearish because the stablecoin position could have been converted for fiat (cashed out) solely due to counterparty risks — meaning investors withdrew from exchanges.

Leverage buyers ignored the failed resistance break

The long-to-short metric excludes externalities that might have solely impacted the stablecoin market. It also gathers data from exchange clients’ positions on the spot, perpetual, and quarterly futures contracts, thus offering better information on how professional traders are positioned.

There are occasional methodological discrepancies between different exchanges, so readers should monitor changes instead of absolute figures.

*Exchanges’ top traders Bitcoin long-to-short ratio. Source: Coinglass*

Even though Bitcoin failed to break the $17,250 resistance, professional traders have kept their leverage long positions unchanged according to the long-to-short indicator.

For instance, the ratio for Binance traders slightly declined from 1.08 on Dec. 5 to the current 1.05 level. Meanwhile, Huobi displayed a modest decrease in its long-to-short ratio, with the indicator moving from 1.04 to 1.02 in the seven days until Dec. 12.

Yet, at OKX exchange, the metric increased from 1.04 on Dec. 5 to the current 1.07 ratio. So, on average, traders have kept their leverage ratio during the week which is encouraging data considering the lackluster price action.

Bitcoin’s $17,250 resistance is losing strength

There’s an old saying: “if a support or resistance keeps getting tested, it is likely to become weaker.” Currently, the stablecoin premium and top traders’ long-to-short — suggest that leverage buyers are not backing despite the multiple failures to break above $17,250 in December.

Even though the Asian stablecoin premium is no longer present, the 1% discount is not enough to signal discomfort or distressed sellers. Furthermore, the top traders’ long-to-short ratio stood flat versus the previous week.

The data from those two markets supports the thesis of Bitcoin breaking above $17,250 as long as the U.S. FED meeting on Dec. 14 signals that the interest rate hikes are nearing an end. If this were the case, investors’ bearish sentiment could be extinguished because bears will become less confident, especially if Bitcoin price holds the $17,000 level.

The views, thoughts and opinions expressed here are 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 conduct their own research when making a decision.

Bitcoin price liquidation risk increases as BTC struggles to reclaim $18K

Leveraged long margin traders are playing with a hot potato, and with BTC struggling at $17,000, they might get burned sooner than later.

Bitcoin (BTC) price had a mixed reaction on Dec. 9 after the November report on United States producer prices showed a 7.4% increase versus 2021. The data suggested that wholesale costs continued to rise and inflation may last longer than investors had previously believed. Oil prices are also still a focus for investors, with crude WTI hitting a new yearly low at $71.10 on Dec. 8.

The United States Dollar Index (DXY), a measure of the dollar’s strength against a basket of top foreign currencies, sustained the 104.50 level, but the index traded at 104.10, a 5-month low on Dec. 4. This signals low confidence in the U.S. Federal Reserve’s ability to curb inflation without causing a significant recession.

Trader gutsareon noted that the choppy activity caused leverage longs and shorts to be liquidated, but it was followed by a failed tentative dump below $17,050.

#BTC

good study case

first late shorts got taken out on the push..then late longs on the flush…then longs again on the PPI number…then shorts again…then a “unusual” low with little to no change in OI

rollercoaster pic.twitter.com/Qju1eOuNMX

— Peter (@gutsareon) December 9, 2022

According to the analysis, the open interest stagnation on futures contracts indicated low confidence from bears.

Regulatory uncertainty could have played a key role in limiting Bitcoin’s upside. On Dec. 8, the United States Securities and Exchange Commission (SEC) issued new guidance that could see publicly traded companies disclose their exposure to crypto assets.

The SEC’s Division of Corporation Finance said that the recent crisis in the crypto asset industry has “caused widespread disruption” and that U.S. companies might have disclosure obligations under federal securities laws to disclose whether these events could impact their business.

Let’s look at derivatives metrics to understand better how professional traders are positioned in the current market conditions.

Bitcoin margin longs faced a drastic increase

Margin markets provide insight into how professional traders are positioned because 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 bet on its price declining. Unlike futures contracts, the balance between margin longs and shorts isn’t always matched.

The above chart shows that OKX traders’ margin lending ratio increased from Dec. 4 to Dec. 9, signaling that professional traders increased their leverage longs even after multiple failed attempts to break above the $17,300 resistance.

Currently at 35, the metric favors stablecoin borrowing by a wide margin and indicates that shorts are not confident about building bearish leveraged positions.

Option traders remain risk-averse

Traders should analyze options markets to understand whether Bitcoin will eventually succumb to the bearish newsflow. The 25% delta skew is a telling sign whenever arbitrage desks and market makers are overcharging for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put options premium is higher than risk call options.

In short, the skew metric will move above 10% if traders fear a Bitcoin price crash. On the other hand, generalized excitement reflects a negative 10% skew.

*Bitcoin 60-day options 25% delta skew: Source: Laevitas*

As displayed above, the 25% delta skew improved between Dec. 4 and Dec. 9, shows options traders reduced their risk aversion for unexpected price dumps. However, at the current 15%, the delta skew signals that investors remain fearful because market makers are less included in offering downside protection.

From one side, the lack of open interest increase as Bitcoin tested the intraday low on Dec. 9 seems encouraging. Still, excessive use of margin indicates that buyers might be forced to reduce their positions during surprise downside moves.

The longer it takes for Bitcoin to recapture $18,000, the riskier it becomes for leverage margin longs. Traditional markets continue to play an essential role in setting the trend, so a potential retest down to $16,000 cannot be ruled out.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Margin trading vs. Futures: What are the differences?

Margin trading and futures are used in cryptocurrency to multiply gains. Here’s what you need to know about these tools, how they work, and their differences.

Are margin and futures trading risky tools?

While investors find margin trading and futures very attractive because of their potential returns, they should be cautious and consider all the risks before adopting them.

Risks associated with margin trading

Crypto margin trading is riskier than standard trading because of the leverage component, which may lose the investor more money than they held initially. Especially considering that cryptocurrencies are very volatile and unpredictable assets, the investor may have to provide extra funds to the collateral to avoid being forced to sell.

Investors start paying interest on the loan they took up to margin trade from day one, and the debt increases as the interest accrues. For this reason, margin trading is suited for short-term investments, as with interest to pay over the long period, the odds of making a profit are slimmer.

Risks associated with futures trading

The main risk associated with futures trading is the elevated leverage that investors can request with their already speculative positions. Typically, futures are allowed far greater leverage than their underlying assets, meaning they also face an increased risk of a margin call that could stretch the losses.

Coupled with the extreme volatility of the cryptocurrency market, the price of a futures contract may not favor the investor at the expiry date. Above all, beginners with little knowledge of markets and strategies should acquire some trading skills before venturing into either margin or futures trading, as they are speculative and risky investment tools.

Are margin trading and futures similar investments?

Margin trading occurs in the spot market — a marketplace for immediate delivery — while futures relates to trades occurring in the derivatives market on assets to be delivered in the future.

Margin trading and futures trading are two strategies that require the investor to have good trading skills as they are considered advanced trading techniques. They are two different types of investment tools with a similar goal, but they just go about different ways to achieve it.

Margin trading vs. futures: Similarities

Opportunity

Margin trading and futures are similar investment tools. They aim to allow investors to buy more of a crypto asset using only their equity. They are both speculative instruments and have different approaches to achieving the same goal.

Purpose

They can both trigger amplified returns but can cause extreme losses too. Especially in the highly volatile cryptocurrency market, it’s somehow easy to experience significant quick gains. Still, dramatic losses can occur too, so it is recommended that only experienced traders use these tools.

Margin trading vs. futures: Differences

Different markets

The main difference between margin trading and futures is in the market they are traded. Margins are traded on the spot market, while futures are contracts exchanged in the derivatives market and imply the future delivery of the asset.

Leverage

Margin trading in crypto usually has a leverage that ranges between 5 and 20%, while it’s common to exceed 100% in futures.

Collateral allocation

Crypto margin accounts allow traders to leverage the spot market through a sort of loan on which interest must be paid, while futures only require a good faith deposit as collateral.

Duration

Being perpetual, the spot market requires traders to determine how long they want to keep a coin leveraged. On the other hand, futures are contracts with an expiry date that determine how long you can hold a position.

Types of investors

They target two types of traders for executing margin trading and futures. Margin trading is more for short-term investors, while futures refers more to long-term investors.

How does a futures trade work?

Futures trading in the cryptocurrency market allows investors to bet on the price of Bitcoin. For example, at a specific date in the future, all without actually owning any of it.

In crypto futures trading, a contract is ratified between a seller who wants to lock in a price hoping for a profit at a specific date in the future and a buyer who will purchase the agreement as a hedge against paying higher prices if the asset grows in value.

The process happens regardless of the actual price of the asset at that future date and is regulated by futures exchanges that must guarantee the fulfillment of the contract at its expiration date. With crypto trading, futures are often quarterly or perpetual contracts.

Futures contracts must include the following:

An expiration date: when the futures contract is settled at the predetermined conditions;
The contract value: the amount of cryptocurrency which forms the underlying asset covered in the contract;
Leverage: Some exchanges allow traders to borrow funds to increase their position size and boost potential gains;
Settlement type: it can usually be in cryptocurrency, cash in hand or through a bank transfer.

What is futures trading?

Futures are a type of derivative contract that ties a buyer and a seller of a cryptocurrency to execute the deal at the established price at a specific date in the future.

Some crypto enthusiasts prefer to invest through futures trading instead of dealing with actually buying or selling it through private keys, passwords and generally avoid going through the hassle that most platforms require to trade crypto. At the same time, they have acquired exposure to the asset.

Crypto futures trading terms are indicated in a futures contract, which ties a buyer to receive a crypto asset at their predicted price on a specific date and the seller to deliver that asset at those same conditions when the futures contract expires, regardless of the market price at the expiration date.

Futures contracts are traded on futures exchanges like the CME Group, the largest and most recognized globally, and are identified by their expiration month. According to the Futures Industry Association (FIA), 29 billion futures contracts were traded in 2021. Futures trading cryptocurrency is a growing portion of the market, with more people interested in this type of investment.

CME reported an increase of 13% in Bitcoin (BTC) added daily value (ADV) of contracts and Micro Bitcoin futures traded in 2021. The benefits of futures trading mainly allow investors to hedge a crypto asset’s price movement to help avoid losses from negative price changes.

In hedging, investors take a position opposite to the one they hold with the underlying asset so that if they lose money on the latter, they will mitigate the loss through the futures contracts balancing their risk exposures and limiting themselves from any fluctuations in price.

You can lose money in futures trading. However, because of the hedging element, losses are mitigated and can be less dramatic than with margin trading. Like margin accounts, trading crypto with futures requires opening a brokerage account which must be approved by the exchange or the broker.

How does margin trading work?

Margin trading aims to amplify gains and allows experienced investors to potentially get them quickly. They may bring dramatic losses, too, if the trader doesn’t know how they work.

When trading on margin, crypto investors borrow money from a brokerage firm to trade. They first deposit cash into a margin account that will be used as collateral for the loan, a kind of security deposit.

Then they start paying interest on the borrowed money, which can be paid at the end of the loan or with monthly or weekly installments, based on current market conditions. When the asset is sold, proceeds are used to repay the margin loan first.

The loan is necessary to raise investors’ purchasing power and buy larger amounts of crypto assets, and the assets purchased automatically become the collateral for the margin loan.

The amount an investor is allowed to borrow depends on the price of the asset purchased and the collateral’s value. Still, typically a broker will offer an investor to borrow up to 50% of the purchase price of a cryptocurrency against the amount of collateral in the account.

So, for instance, if an investor wants to buy $1,000 worth of cryptocurrency and put half of that on margin, they’ll need at least $500 worth of collateral to repay the initial loan.

Margin trading leverage

A margin account is typically used for leveraged trading, with the leverage representing the ratio of borrowed funds to the margin. A margin trading example could be to open a $10,000 trade at a leverage of 10:1. In that case, a trader must commit $1,000 of their capital to execute the trade.

These leverage ratios vary depending on the trading platform and the market traded. The stock market, for example, has a typical ratio of 2:1. In contrast, with futures contracts, the ratio rises to 15:1. In crypto margin trading, where rules are not always established like in traditional markets, the leverage ratio could vary from 2:1 to as much as 125:1. The crypto community usually simplifies referring to the ratio as 2x, 5x, 125x, and so forth, which indicates the multiplied amount their investment could accrue to.

Margin trading includes references such as going long or short on trades investors take. When people go long, they refer to an extended position they’ve taken, predicting that the price will go up in value. A short position is based on the assumption that the opposite will happen, and investors have a negative position on the crypto, believing it will drop in price. In that case, the investor will profit if the asset falls.

The benefit of margin trading is to amplify gains, but investors can also lose money. The trader’s assets are the collateral for the loan, and in case their value drops below a fixed threshold, the broker reserves the right to force a sale unless the investor injects more funds as collateral to achieve the minimum requirements for margin trading.

What is margin trading?

Margin trading is a strategy that allows investors to buy more assets without using their own funds and borrowing funds from a broker instead.

Margin trading in cryptocurrency markets is no different from traditional margin trading. Margin funding is considered a loan to trade a digital asset, where the margin is the money borrowed from a broker and the difference between the total value of the investment and the loan amount.

The assets that form the balance of a margin trading account are used as collateral for the loan to cover the credit risk and potential losses traders may have, especially when trading on leverage. The brokerage firm or a crypto exchange may liquidate a trader’s assets if the value of the investment drops considerably.

In order to trade crypto with margin, an investor needs to be authorized by the service provider to open a margin account where to deposit crypto, cash, or securities as collateral for the loan. In margin trading cryptocurrency, the leverage will amplify both gains and losses, and a margin call may occur with heavy losses, such as a decrease in the securities’ equity value.

A margin call allows the exchange or a broker to liquidate the investor’s collateral without consent or to request more funds into their margin account to avoid a forced liquidation to satisfy the broker.

DXY bounces at major support, reducing Bitcoin’s chance at breaking the $17.2K resistance

The dollar index (DXY) found support at a key level, leading traders to question whether BTC will manage to flip $17,250 to support.

On Dec. 2, the United States dollar index (DXY), an index that measures the dollar’s strength against a basket of top foreign currencies, reached 104.40, which was the lowest level seen in five months.

To recap, the U.S. dollar’s weight against the basket of top foreign currencies grew by 19.6% in 2022 until late September as investors looked for protection against the impact of a hawkish Federal Reserve and, more recently, the rising energy costs and the effect of high inflation.

The U.S. dollar’s retreat may have been an interim correction to neutralize its “overbought” condition, as the 114.60 peak was the highest level in 20 years. Still, its inverse correlation with Bitcoin (BTC) remains strong, as pointed out by analyst Thecryer on Twitter:

$DXY $BTC pic.twitter.com/jG9HmYN8Mg

— Thecryer (@HumpBackCrypto) December 2, 2022

Notice how the intraday DXY retrace to 105.50 from the 104.40 low happened when Bitcoin faced a $230 flash crash to $16,790. Such movements reinforce how cryptocurrencies’ performance remains codependent on traditional markets.

Bitcoin enthusiast Aldo the Apache noticed that the DXY “bullish divergence at support” occurred as the S&P 500 stock market index struggled with a vital resistance level.

$DXY with bullish divergence at support while $SPX is coming is at major resistence.

What does this mean for $BTC? Another leg down IMO. pic.twitter.com/PK3Ku0zZrl

— Aldo the Apache (@AldotheApache77) December 2, 2022

According to the analyst, the net impact for Bitcoin is negative if the expected trajectory confirms with the U.S. dollar gaining strength against major fiat currencies, and the stock market faces another leg down.

On-chain metrics are also painting a potentially bearish picture as Bitcoin miners, feared to be entering a new wave of capitulation, have upped sales of BTC reserves. For instance, the record hash rate and increased energy costs have drastically severed miners’ profitability.

Glassnode’s miner outflow multiple, which measures BTC outflows from miner wallets relative to their one-year moving average, is now at its highest in six months.

Let’s look at derivatives metrics to understand better how professional traders are positioned in the current market conditions.

Bitcoin margin longs see a drastic reduction

Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions.

For instance, one can increase exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet on its price declining. Unlike futures contracts, the balance between margin longs and shorts isn’t always matched.

The above chart shows that OKX traders’ margin lending ratio firmly declined from Nov. 27 to Nov. 30, signaling that professional traders decreased their leverage longs during the dip toward $16,000.

More importantly, the subsequent $1,250 gain that led Bitcoin to $17,250 on Nov. 30 was not enough to instill confidence in Bitcoin buyers using stablecoin borrowing. Still, presently at 23, the metric favors stablecoin borrowing by a wide margin — indicating shorts are not confident about building bearish leveraged positions.

Option traders remain risk-averse

Traders should analyze options markets to understand whether Bitcoin will successfully break the $17,250 resistance. The 25% delta skew is a telling sign whenever arbitrage desks and market makers are overcharging for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put options premium is higher than risk call options.

In a nutshell, the skew metric will move above 10% if traders fear a Bitcoin price crash. On the other hand, generalized excitement reflects a negative 10% skew.

As displayed above, the 25% delta skew declined between Nov. 21 and Nov. 30, indicating options traders reduced their bets of unexpected price dumps. However, the trend inverted on Dec. 1 after the $17,250 resistance proved stronger than expected.

Currently, at 18%, the delta skew signals that investors are still fearful and it reflects a lack of interest from whales and market makers in offering downside protection.

Consequently, pro traders are not confident that Bitcoin will recapture $18,000 anytime soon, which can be explained by the high correlation with traditional markets.

Until the DXY index sets a more precise direction and the S&P 500 shows strength at 4,000, the trend favors Bitcoin bears.

The views, thoughts and opinions expressed here are 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 conduct their own research when making a decision.

Bitcoin’s bottom might be below $15.5K, but data shows some traders turning bullish

Bitcoin whales and market makers continue to add to their leverage long positions, even though it’s unclear whether $15,500 was the final bottom.

Bitcoin (BTC) bears have been in control since Nov. 11, subduing BTC price below $17,000 on every 12-hour candle. On Nov. 28, a drop to $16,000 shattered bulls’ hope that the 7% gains between Nov. 21 and Nov. 24 were enough to mark a cycle low at $15,500.

The most likely culprit was an unexpected transfer of 127,000 BTC from a Binance cold wallet on Nov. 28. The huge Bitcoin transaction immediately triggered fear, uncertainty and doubt, but the Binance CEO, Changpeng Zhao, subsequently announced it was part of an auditing process.

Regulatory pressure has also been limiting BTC’s upside after reports on Nov. 25 showed that cryptocurrency lending firm Genesis Global Capital and other crypto firms were under investigation by securities regulators in the United States. Joseph Borg, director of the Alabama Securities Commission, confirmed that its state and several other states are investigating Genesis’ alleged ties to securities laws violation.

On Nov. 16, Genesis announced it had temporarily suspended withdrawals, citing “unprecedented market turmoil.” Genesis also hired restructuring advisers to explore all possible options, including but not limited to a potential bankruptcy, as reported by Cointelegraph on Nov. 23.

Let’s look at derivatives metrics to better understand how professional traders are positioned in the current market conditions.

Margin markets show leverage longs at a 3-month high

Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions.

The above chart shows that OKX traders’ margin lending ratio increased from Nov. 20 to Nov. 27, signaling that professional traders increased their leverage longs during the 6% dip toward $15,500. Presently at 34, the metric favors stablecoin borrowing by a wide margin — the highest in three months — indicating traders have kept their bullish positions.

Leverage buyers ignored the recent dip to $15,500

The long-to-short metric excludes externalities that might have solely impacted the margin markets. In addition, it gathers data from exchange clients’ positions on the spot, perpetual and quarterly futures contracts, thus offering better information on how professional traders are positioned.

There are occasional methodological discrepancies between different exchanges, so readers should monitor changes instead of absolute figures.

Even though Bitcoin failed to break above the $16,700 resistance, professional traders have kept their leverage long positions, according to the long-to-short indicator.

For instance, the ratio for Binance traders improved somewhat from 1.00 on Nov. 21, but ended the period at 1.05. Meanwhile, Huobi displayed a more substantial increase in its long-to-short ratio, with the indicator moving from 1.01 to 1.08 in the seven days until Nov. 28.

At crypto exchange OKX, the metric slightly decreased from 0.99 on Nov. 21 to 0.96 on Nov. 28. Consequently, on average, traders are confident enough to keep adding leverage to bullish positions.

The $16,200 support showed strength, suggesting that traders are turning bullish

These two derivatives metrics — margin and top trader’s long-to-short — suggest that size leverage sellers did not back the Bitcoin price correction to $16,000 on Nov. 28.

A bearish sentiment would have caused the margin lending ratio to go below 15, pushing the long-to-short ratio much lower. It is important to note that even pro traders can misinterpret the market, but the present reading from the derivatives market favors a strong $16,000 support.

Still, even if the price revisits $15,500, the bulls should not be concerned as the derivatives indicators withheld neutral-to-bullish on Nov. 21 and further improved during the week.

The views, thoughts and opinions expressed here are 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 conduct their own research when making a decision.