margin

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For example, after purchasing 10 Bitcoin using margin, the coins can be withdrawn from the exchange.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.

Bitcoin derivatives suggest $26K resistance level won’t hold for long

BTC margin and option markets show no signs of discomfort or overconfidence despite 28% gains in two days.

The price of Bitcoin (BTC) increased by 28% between March 12-14, reaching $26,500, its highest level since June 2022. Some may attribute the gains to the consumer price index’s (CPI) 6% year-over-year increase in February, even though the figure was in line with expectations.

The inflation metric reached its lowest level since September 2021, which is a positive development, but it does not validate the Federal Reserve’s attempt to reduce the metric to 2%. Most likely, risk markets, such as stocks and cryptocurrencies, soared after regional bank stocks recovered from their March 13 lows.

At 10:30 a.m. Eastern Time, First Republic Bank (FRC) shares were trading 54% higher, followed by Western Alliance Bancorporation (WAL) gaining 46% and KeyCorp (KEY) gaining 15%. The 30-year average 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 partially explains the rally.

The unexpected decline 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 data from Realtor.com, a buyer of a median-priced home still faced a monthly mortgage payment that was 49% higher than it was one year prior.

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 assuming the position that oversees the State Council, China’s highest executive body. According to Qiang, non-state-owned enterprises in China will have greater room for development.

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

Bitcoin margin markets signaling a market deficiency

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 and buying Bitcoin. On the other hand, borrowers of Bitcoin can only take short bets against the cryptocurrency.

Since March 13, OKX traders’ margin lending ratio has been above 35, indicating a significant mismatch in favor of Bitcoin longs. Readings above 40 are uncommon and driven by a high stablecoin borrowing cost of 25% per year.

One should refer to the BTC option markets to confirm whether professional traders are effectively expecting further price increases.

Options traders are far from excited

Traders should also analyze options markets to understand whether the recent correction has caused investors to become less risk-averse. The 25% delta skew is a telling sign whenever arbitrage desks and market makers overcharge 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 premium for protective put options is higher than the premium for risk call options.

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 8%, and generalized excitement has a negative 8% skew.

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

On March 13, when Bitcoin broke above the $22,000 resistance level, the BTC options’ main risk gauge exited the fear zone that had been in place for three days. As options traders assigned the same risk assessment to bullish and bearish strategies, the 25% delta skew entered a neutral zone.

However, it would be incorrect to conclude that the negative 5% skew seen briefly on March 14 indicates excessive optimism or bullishness. Analysts and pundits frequently jump the gun and celebrate quick reversions, but anything between -8% and +8% remains in the neutral zone.

According to the pricing of options contracts, derivatives data indicates that professional traders maintained their long positions using margin markets and exited their bearish stance on March 13. Given the improvement in macroeconomic market conditions, Bitcoin bulls are well-positioned to drive the price above $26,000.

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

Bitcoin derivatives suggest $26K resistance level won’t hold for long

BTC margin and options markets show no signs of discomfort or overconfidence despite 28% gains in two days.

The price of Bitcoin (BTC) increased by 28% between March 12 and 14, reaching $26,500, its highest level since June 2022. Some may attribute the gains to the Consumer Price Index’s (CPI) 6% year-over-year increase in February, even though the figure was in line with expectations.

The inflation metric reached its lowest level since September 2021, which is a positive development, but it does not validate the United States Federal Reserve’s attempt to reduce the metric to 2%. Most likely, risk markets, such as stocks and cryptocurrencies, soared after regional bank stocks recovered from their March 13 lows.

At 10:30 am Eastern Time, First Republic Bank (FRC) shares were trading 54% higher, followed by Western Alliance Bancorporation (WAL) gaining 46% and KeyCorp (KEY) gaining 15%. The 30-year average 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 partially explains the rally.

Despite the possibility of a recession in the U.S. due to high interest rates, China’s economic outlook remains positive. Li Qiang addressed reporters on March 14 for the first time since assuming the position that oversees the State Council, China’s highest executive body. According to Qiang, non-state-owned enterprises in China will have greater room for development.

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

Bitcoin margin markets signaling a market deficiency

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 and buying Bitcoin. On the other hand, borrowers of Bitcoin can only take short bets against the cryptocurrency.

One should refer to the BTC option markets to confirm whether professional traders are effectively expecting further price increases.

Options traders are far from excited

In short, if traders anticipate a Bitcoin price drop, the skew metric will rise above 8%, and generalized excitement has a negative 8% skew.

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

Bitcoin leverage ramps up as BTC’s margin long-to-shorts ratio hits a record $2.5B high

BTC traders at Bitfinex and OKX are unwilling to use margin markets for bearish bets, creating an alarming imbalance that investors should pay close attention to.

Crypto traders’ urge to create leverage positions with Bitcoin (BTC) appears irresistible to many people, but it’s impossible to know if these traders are extreme risk-takers or savvy market-makers hedging their positions. The need to maintain hedges holds even if traders rely on leverage merely to reduce their counterparty exposure by maintaining a collateral deposit and the bulk of their position on cold wallets.

Not all leverage is reckless

Regardless of the reason for traders’ use of leverage, currently there is a highly unusual imbalance in margin lending markets that favors BTC longs betting on a price increase. Despite this, so far, the movement has been restricted on margin markets because the BTC futures markets remained relatively calm throughout 2023.

Margin markets operate differently from futures contracts in two main areas. Those are not derivatives contracts, meaning the trade happens on the same order book as regular spot trading and, unlike futures contracts, the balance between margin longs and shorts is not always matched.

For instance, after buying 20 Bitcoin using margin, one can literally withdraw the coins from the exchange. Of course, there must be some form of collateral, or a margin deposit, for the trade, and this is usually based on stablecoins. If the borrower fails to return the position, the exchange will automatically liquidate the margin to repay the lender.

The borrower must also pay an interest rate for the BTC bought with margin. The operational procedures will vary between marketplaces held by centralized and decentralized exchanges, but usually the lender gets to decide the rate and duration of the offers.

Margin traders can either long or short

Margin trading allows investors to leverage their positions by borrowing stablecoins and using the proceeds to buy more cryptocurrency. When these traders borrow Bitcoin, they use the coins as collateral for short positions, which means they are betting on a price decrease.

That is why analysts monitor the total lending amounts of Bitcoin and stablecoins to understand whether investors are leaning bullish or bearish. Interestingly, Bitfinex margin traders entered their highest leverage long/short ratio on Feb. 26.

*Bitfinex margin Bitcoin longs/shorts ratio. Source: TradingView*

Historically, Bitfinex margin traders are known for creating margin positions of 10,000 BTC or higher quickly, indicating the participation of whales and large arbitrage desks.

As the above chart indicates, on Feb. 26, the BTC/USD long (bulls) margin demand outpaced shorts (bears) by 133 times, at 105,300 BTC. Before 2023, the last time this indicator reached an all-time high favoring longs was Sept. 12, 2022. Unfortunately, for bulls, the result benefited bears as Bitcoin nosedived 19% over the following six days.

Traders should cross-reference the data with other exchanges to ensure the anomaly is market-wide, especially since each marketplace holds different risks, norms, liquidity and availability.

OKX, for instance, provides a margin lending indicator based on the stablecoin/BTC ratio. At OKX, traders can increase exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only bet on the decline of a cryptocurrency’s price.

The above chart shows that OKX traders’ margin lending ratio increased through February, signaling that professional traders added leveraged long positions even as Bitcoin price failed to break the $25,000 resistance multiple times between Feb. 16 and Feb. 23.

Furthermore, the margin ratio at OKX on Feb. 22 was the highest level seen in over six months. This level is highly unusual and matches the trend seen at Bitfinex where a strong imbalance favored Bitcoin margin longs.

The difference in the cost of leverage could explain the imbalance

The rate for leverage BTC longs at Bitfinex has been almost nonexistent throughout 2023, currently sitting below 0.1% per year. In short, traders should not panic, considering the cost of margin lending remains in a zone that is deemed healthy, and the imbalance is not present in futures contracts markets.

There may be a plausible explanation for the movement, which did not happen overnight. For instance, a possible culprit is the rising cost of stablecoin lending.

Instead of the minimal rate offered for Bitcoin loans, stablecoin borrowers pay 25% per year on Bitfinex. That cost increased significantly in November 2022 when the leading derivatives exchange FTX and their market-maker, Alameda Research, blew up.

As long as Bitcoin margin markets remain extremely unbalanced, traders should continue monitoring the data for additional signs of stress. Currently, no red flags are raised, but the size of the Bitfinex BTC/USD longs ($2.5 billion position) should be a reason for concern.

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 derivatives look a bit overheated, but data suggests bears are outnumbered

Bullish BTC traders are using excessive leverage, but bears’ reluctance to fight back could extend the current Bitcoin price rally.

Bitcoin (BTC) price rallied over 12% on Feb. 15, marking the highest daily close in more than six months. Curiously, the movement happened while gold reached a 40-day low at $1,826, indicating some potential shift in investors’ risk assessment for cryptocurrencies.

A stronger-than-expected U.S. inflation report on Feb. 14 showed consumer prices rising 5.6% year-on-year, followed by data showing resilient consumer demand, causing traders to rethink Bitcoin’s scarcity value. U.S. retail sales increased by 3% in January over the previous month — the highest gain in almost two years.

On-chain data indicates that the recent gains can be traced back to a mysterious institutional investor that started buying on Feb. 10. According to Lookonchain’s data, nearly $1.6 billion in funds have flowed into the crypto market between Feb. 10 and Feb. 15. The analysis showed that three notable USD Coin (USDC) wallets sent out funds to various exchanges around the same time.

More importantly, news emerged that the Binance exchange is preparing to face penalties and settle eventual outstanding regulatory and law-enforcement investigations in the U.S., according to a Feb. 15 Wall Street Journal report. The exchange’s chief strategy officer, Patrick Hillmann, added that Binance was “highly confident and feeling really good about where those discussions are going.”

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

Bitcoin margined longs entered the “FOMO” range

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 (long) Bitcoin. On the other hand, Bitcoin borrowers can only bet against (short) the cryptocurrency. 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 between Jan. 13 and Jan. 15, signaling that professional traders added leverage long positions as Bitcoin price broke above the $23,500 resistance.

One might argue that the demand for borrowing stablecoins for bullish positioning is excessive as a stablecoin/BTC margin lending ratio above 30 is unusual. However, traders tend to deposit more collateral after a few days or weeks, causing the indicator to exit the FOMO level.

Options traders remain skeptical of a sustained rally

Traders should also analyze options markets to understand whether the recent rally has caused investors to become more risk-averse. 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.

Notice that the 25% delta skew has been neutral for the past two weeks, signaling equal pricing for bullish and bearish strategies. This reading is highly unusual considering Bitcoin gained 16.2% from Jan. 13 to Jan. 16 and typically, one would expect excessive bullishness causing the skew to move below negative 10.

One thing is for sure, a lack of bearish sentiment is present in futures and options markets. Still, there are some concerning data on excessive margin demand for leverage buying, although it is too soon to call it worrisome.

The longer Bitcoin remains above $24,000, the more comfortable those pro traders become with the current rally. Moreover, bears using futures markets had $235 million liquidated between Jan. 15 and Jan. 16, resulting in a decreasing appetite for bearish bets. Hence, the derivatives markets continue to favor bullish momentum.

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.

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

Bitcoin price rallies to $19K, but analyst says a $17.3K retest could happen next

Bitcoin price hit a year-to-date high near $19,000 as pro traders used leverage to propel the pump, but derivatives data hints at reasons for BTC price to retest $17,300.

Bitcoin (BTC) price has gained 15% in the past 13 days, and during this timeframe, traders’ bearish bets in BTC futures were liquidated in excess of $530 million compared to bulls.

After rallying to $19,000 on Jan. 12, Bitcoin reached its highest price since the FTX exchange collapse on Nov. 8. The move was largely fueled by the United States Consumer Price Index (CPI) expectation for December, which matched consensus at 6.5% year-over-year — highlighting that the inflationary pressure likely peaked at 9% in June.

Furthermore, on Jan. 11, FTX attorney Andy Dietderich said $5 billion in cash and liquid cryptocurrencies had been recovered — fueling hopes of partial return of customer funds in the future. Speaking to a U.S. bankruptcy judge in Delaware on Jan. 11, Dietderich stated that the company plans to sell $4.6 billion of non-strategic investments.

Let’s look at derivatives metrics to understand whether professional traders are excited about Bitcoin’s rally to $19,000.

Margin use increased as Bitcoin price rallied to $18,300 and above

Margin markets provide insight into how professional traders are positioned, and margin is beneficial to some investors because it allows them 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 increased on Jan. 11, signaling that professional traders added leverage longs as Bitcoin rallied toward $18,300.

More importantly, the subsequent 2% correction on Jan. 12 that led Bitcoin to a $17,920 low marked the complete margin reversal, meaning whales and market makers reduced their bullish positions using margin markets.

Presently at 21, the metric favors stablecoin borrowing by a wide margin, indicating that bears are not confident about opening Bitcoin margin shorts.

Futures traders ignored the Bitcoin price pump

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.

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

Even though Bitcoin broke above the $18,000 resistance, professional traders have kept their leverage long positions unchanged, according to the long-to-short indicator.

For instance, the ratio for Binance traders stood firm at 1.08 from Jan. 9 until Jan. 12. Meanwhile, top traders at Huobi reduced their leverage longs as the indicator moved from 1.09 to the present 0.91. Lastly, at crypto exchange OKX, the long-to-short slightly increased favoring longs, moving from 0.95 on Jan. 9 to the current 0.97.

Traders using futures contracts were not confident enough to add leveraged bullish positions despite the price increase.

Bitcoin price could retest $17,300

While the margin data shows that sizable leverage was used to push Bitcoin above $18,000, it suggests that the situation was only temporary. Most likely, those professional traders deposited more margin and consequently reduced their leverage after the event. In essence, the metric looks very healthy because it indicates that margin markets are not overbought.

As for the top trader’s long-to-short, the absence of demand for leverage longs using futures contracts is somewhat concerning, but at the same time, it leaves room for additional purchasing power.

From a derivatives standpoint, even if Bitcoin retests $17,300, the bulls should not be concerned because the derivatives indicators show little demand from short sellers and no excessive leverage from buyers.

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.

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

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.

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.

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.

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

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.