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

The price of Bitcoin (BTC) surged over 12% on February 15, marking its highest daily close in over six months. Curiously, the move came as gold hit a 40-day low at $1,826, indicating some potential shift in investors’ risk assessment of cryptocurrencies.

A stronger-than-expected U.S. inflation report on Feb. 14 saw a 5.6% year-on-year rise, and then data suggesting resilience in consumer demand made traders rethink the value of the bitcoin scarcity. US retail sales rose 3% in January from the previous month, the highest gain in almost two years.

On-chain data shows that the recent rally can be traced back to a mysterious institutional investor who started buying on Feb. 10. Approximately $1.6 billion entered the cryptocurrency market between February 10 and 15, according to Lookonchain data. The analysis showed that three known USD Coin (USD) wallets sent funds to different exchanges around the same time.

More importantly, news has surfaced that the Binance exchange is preparing to face sanctions and resolve possible pending regulatory and law enforcement investigations in the US, according to a February 15 Wall Street Journal report. The exchange’s director of strategy, Patrick Hillmann, added that Binance “has complete confidence and feels very good about where these discussions are going.”

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

Bitcoin Margin Longs Enter ‘FOMO’ Range

Leveraged markets provide insight into how professional traders are positioned because they allow investors to borrow cryptocurrencies to leverage their positions.

For example, you can increase your exposure by borrowing stablecoins to buy (long) bitcoins. On the other hand, Bitcoin borrowers can only bet against (short) cryptocurrencies. Unlike futures contracts, the balance between margined longs and shorts does not always match.

OKX/BTC stablecoin margin lending ratio. Source: OKH

The chart above shows that the OKX Trader Margin Lending Ratio increased between January 13 and 15, signaling that professional traders added leverage to long positions as the price of bitcoin broke the $23,500 resistance.

It can be argued that the demand to borrow stablecoins for bullish positioning is excessive, as a stablecoin/BTC margin lending ratio above 30 is unusual. However, traders tend to post more collateral after a few days or weeks, causing the indicator to move out of the FOMO level.

Options traders remain skeptical of a sustainable rally

Traders should also analyze the options markets to see if the recent rally has made investors take less risk. A skewed delta of 25% is a telltale sign whenever arbitrageurs and market makers are overpriced for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and becomes positive when fear prevails because the defensive put premium is higher than the risk of the call option.

In short, the skew rate will exceed 10% if traders fear a collapse in Bitcoin prices. On the other hand, generalized arousal reflects a negative 10 percent asymmetry.

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60-Day Bitcoin Options Skewed Delta 25%: Source: Laevitas

Note that the 25% delta skew has been neutral over the past two weeks, signaling the same price for bullish and bearish strategies. This value is highly unusual given that Bitcoin gained 16.2% from January 13 to 16, and one would generally expect an excessive bullish skew, forcing the skew below minus 10.

One thing is certain, there is no bearish sentiment in the futures and options markets. However, there is some worrying evidence of excessive margin demand for leveraged purchases, although it is too early to call this worrying.

The longer Bitcoin stays above $24,000, the more comfortable these professional traders feel in the current rally. In addition, the bears using the futures markets liquidated $235 million between Jan. 15 and Jan. 16, reducing appetite for bearish bets. Consequently, the derivatives markets continue to maintain the bullish momentum.

This article does not contain investment advice or recommendations. Every investment and trading step involves risk, and readers should do their own research when making a decision.

The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cryptooshala.

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