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More than just an airdrop? Arbitrum builds a resilient DeFi fortress with unique primitives

Arbitrum is making moves to become the hub of decentralized derivatives trading and DeFi activity within the layer-2 space.

The total value locked (TVL) in DeFi applications on the Arbitrum, a layer-2 Ethereum network blockchain, has doubled since the start of 2023.

While investors’ hope of an ARBI token airdrop is a major factor attracting activity to the Ethereum layer-1 network, the ecosystem’s DeFi growth is also showing robust growth. 

Arbitrum has become a major hub for decentralized derivatives trading and offers high yields for crypto yield hunters, reminiscent of wild west DeFi days of 2020.

GMX and Gains Network takeover decentralized derivatives trading

GMX is the leading DApp on Aribitrum, which comprises 25% of the network’s total TVL. The perpetual swap trading platform pits traders and liquidity providers against one another. The liquidity providers own GLP tokens, an index of cryptocurrencies and stablecoins that act as trader counterparties. Meanwhile, stakers of GMX token earn 30% of the protocol’s fees, the platform offers real yields without diluting the token’s supply.

While the trading volume of GMX is nearly five times less than the leading decentralized exchange dYdX, it has started to threaten dYdX’s lead. Interestingly, despite having larger trading volumes, the TVL of dYdX is half of GMX, possibly due to dYdX inadvertently incentivizing wash trading through DYDX token emissions.

Currently, the GMX platform is limited by the number of tokens traded on the platform, which includes only BTC, ETH, UNI and LINK. Whereas dYdX offers perpetual swaps in 36 cryptocurrencies. This will change after the launch of synthetic tokens on GMX, enabling synthetic mints for numerous tokens.

GMX also offers spot trading for specific pairs, making it ideal for integration across other platforms that want to use leverage trading or exchange liquidity. For instance, JonesDAO recently deployed a liquidity provider vault by leveraging GMX’s design.

Gains Network, a synthetic, paper trading platform originally on Polygon, added its platform to Arbitrum on Jan. 31, 2022. Since then, the trading activity on Gains has spiked significantly, possibly due to the numerous assets available for trading, including various cryptocurrencies, stock market indices and gold.

Crypto analytics firm Delphi Digital recently found that Gains Network is close to reaching parity with GMX in terms of the trading volume. The feat is commendable because, similar to GMX, Gains Network does not incentivize trading activity through token emission. Instead, the platform follows a real yield concept.

The report added that Gains Network had the 4th highest protocol earnings since September 2022. It will be interesting to see how these platforms compete after the launch of synthetic token trading on GMX.

What is notable is that both platforms are creating a competitive environment for derivatives trading on Arbitrum. The Ethereum layer-2 is slowly positioning itself as the leading platform for decentralized paper trading. The current leader dYdX enjoys a first-mover advantage in this space, but the time spent developing the V2 Cosmos SDK-based version clearly provides an opportunity for a liquidity-rich ecosystem like Arbitrum to prosper.

Arbitrum harbors high risk, high reward plays

Besides derivatives trading, the TVL and token price of many other dApps in the Arbitrum ecosystem have surged since the start of 2023.

Camelot, a decentralized exchange with an efficient revenue-sharing token mechanism, was one of the top gainers in the market in the last few months. The price of Camelot’s native token, GRAIL, jumped 15x since the start of the year, with the protocol’s TVL rising to a record high at $50 million.

Camelot's token launchpad for public fundraising for Arbitrum ecosystem projects has been an astounding success. Five projects in the ecosystem raised over $20 million in a short period as high yield seekers flocked to the platform for quick gains.

Radiant Network, a cross-chain lending platform whose TVL increased from $20 million to $120 million year-to-date, also played a significant role in expanding Arbitrum TVL. Radiant's success can be attributed to the platform's upgrade and improved tokenomics.

Related: 1inch users on Optimism to receive airdrop of 300K OP tokens

The Radiant community smoothened the vesting schedule for tokens and added a 5% liquidity provision requirement to RDNT trading pairs on decentralized exchanges of a user's total liquidity to earn RDNT emissions. Beyond that, Radiant will also bring to life its cross-chain money market facility with expansion to five more chains.

There's also evidence of funds accumulating Arbitrum ecosystem tokens. Reportedly, Arca Investments, a digital asset firm, is accumulating Arbitrum ecosystem tokens like GMX, Dopex (DPX), and Radiant Capital (RDNT). Data from Nansen also shows a significant increase in balances for RDNT tokens among smart money wallets identified by the analytics firm.

The DeFi ecosystem development on Arbitrum shows promise of sustainable growth, especially in the decentralized derivatives trading space. There's a strong possibility that some users could be using Arbitrum only for the ARBI token airdrop. However, the recent Optimism and Blur token airdrops have shown that user activity doesn't necessarily subside after an airdrop. Instead, it gives an opportunity for platforms to incentivize additional usage.

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 Stories: Scott Melker tells the story of how he became The Wolf of All Streets

Bitcoin’s Price Drop Causes Over $200 Million in Long Liquidations Across Crypto Derivative Exchanges

Bitcoin’s Price Drop Causes Over 0 Million in Long Liquidations Across Crypto Derivative ExchangesOn Feb. 24, 2023, bitcoin’s price remained above the $23,000 threshold and then rose to a peak of $23,829 per unit on March 1. On March 2 at 8 p.m. Eastern Time, the price of bitcoin fell, dropping below the $23,000 mark. This decline resulted in a significant $237.97 million worth of long liquidations on […]

Crypto Stories: Scott Melker tells the story of how he became The Wolf of All Streets

Bitcoin price searches for direction ahead of this week’s $710M BTC options expiry

BTC’s recent price swings are the result of regulatory pressure and the Federal Reserve’s stance on U.S. inflation.

Bitcoin (BTC) bulls laid most of their options at $24,500 and higher for the March 3 options expiry, and given the recent bullishness seen from BTC, who can blame them? On Feb. 21, Bitcoin price briefly traded above $25,200, reflecting an 18% gain in eight days. Unfortunately, regulatory pressure on the crypto sector increased and despite no effective measures being announced, investors are still wary and reactive to remarks from policymakers.

For instance, on Feb. 23, U.S. Securities and Exchange Commission Chair Gary Gensler claimed that "everything other than Bitcoin" falls under the agency's jurisdiction. Gensler noted that most crypto projects "are securities because there's a group in the middle and the public is anticipating profits based on that group."

March 1 comments from two U.S. Federal Reserve (FED) officials reiterated the necessity for even more aggressive interest rate increases to curb inflation. Minneapolis FED President Neel Kashkari's and Atlanta FED President Raphael Bostic's comments also decreased investors' expectations of a monetary policy reversion happening in 2023.

The stricter stance from the macroeconomic and crypto regulatory environment caused investors to rethink their exposure to cryptocurrencies. Nevertheless, Bitcoin's price decline practically extinguished bulls' expectation for a $24,500 or higher options expiry on March 3, so their bets are unlikely to pay off as the deadline approaches.

Bulls were "rug pulled" by negative regulatory remarks

The open interest for the March 3 options expiry is $710 million, but the actual figure will be lower since bulls became overconfident after Bitcoin traded above $25,000 on Feb. 21.

Bitcoin options aggregate open interest for March 3. Source: CoinGlass

The 1.12 call-to-put ratio reflects the imbalance between the $400 million call (buy) open interest and the $310 million put (sell) options. However, the expected outcome is likely much lower regarding active open interest.

For example, if Bitcoin's price remains near $23,600 at 8:00 am UTC on March 3, only $50 million worth of these call (buy) options will be available. This difference happens because the right to buy Bitcoin at $24,000 or $25,000 is useless if BTC trades below that level on expiry.

Bears have set their trap below $23,000

Below are the four most likely scenarios based on the current price action. The number of options contracts available on March 3 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $22,000 and $22,500: 700 calls vs. 6,200 puts. The net result favors the put (bear) instruments by $120 million.
  • Between $22,500 and $23,000: 1,000 calls vs. 4,800 puts. The net result favors the put (bear) instruments by $85 million.
  • Between $23,000 and $24,000: 2,100 calls vs. 1,800 puts. The net result is balanced between bulls and bears.
  • Between $24,000 and $25,000: 4,900 calls vs. 400 puts. The net result favors the call (bull) instruments by $110 million.

This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.

For example, a trader could have sold a call option, effectively gaining negative exposure to Bitcoin above a specific price, but unfortunately, there's no easy way to estimate this effect.

Related: Bitcoin's least volatile month ever? BTC price ends February up 0.03%

Could weak U.S. mortgage applications could benefit BTC bulls?

Bitcoin bulls must push the price above $24,000 on March 3 to secure a potential $110 million profit. However, data from the Mortgage Bankers Association's announcement on March 1 might turn the tide favorably for BTC. The weekly volume of mortgage applications declined by 44% versus the same period in 2022, hitting the lowest level in 28 years.

Considering the negative pressure from regulators and investors' eying the next FED decision on March 22, bears have good odds of pressuring BTC below $23,000 and profiting by $85 million in the March 3 weekly options expiry. Still, there's hope for Bitcoin bulls depending on how traditional markets react to the bearish mortgage applications data.

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.

Crypto Stories: Scott Melker tells the story of how he became The Wolf of All Streets

Aussie regulators review Binance Australia Derivatives over account closures

A day after Binance Australia Derivatives sent notifications of account closures to users it wrongly classified, regulators in Australia said they’re looking into the company.

Binance Australia Derivatives sent an abrupt message to a select group of users on Feb. 23, saying it would be immediately closing their accounts due to a false classification of some users as “wholesale clients.” 

This incident caused a flurry of responses from users on social media, and the next day, the Australian Securities and Investments Commission (ASIC) announced it would be conducting a “targeted review” of Binance's local derivatives operations.

According to a statement from a spokesperson of the regulator on Feb. 24, the review of Binance Australia Derivatives will include the company’s “classification of retail clients and wholesale clients."

The spokesperson added:

“It has not yet reported these matters to ASIC in accordance with its obligations under its Australian financial services license.”

However, the spokesperson said the regulator “is aware of Binance’s social media posts,” which were made shortly after users began posting screenshots of the notices on Twitter. 

Binance took to social media to clarify the incident, saying that it closed derivatives positions and accounts for some users who they incorrectly classified as “wholesale clients.” Currently the platform is only available to wholesale investors. 

Related: SEC files objection to Binance.US bid for Voyager assets

A few hours after its initial posts, Binance said 500 users were affected by the remediation.

A spokesperson from Binance reiterated that the exchange is “committed” to adhering to local Australian laws.

Changpeng CZ Zhao, the co-founder and CEO of Binance, tweeted that all users will be compensated of any losses and to ignore the FUD. He also mentioned that the company is looking into the situation to see if reopening futures in Australia will be an option in the future.

The cryptocurrency exchange is currently the largest in the world and has been very public about its efforts to comply with regulatory requirements of its local operations. 

Crypto Stories: Scott Melker tells the story of how he became The Wolf of All Streets

Former FTX CEO Sam Bankman-Fried Faces New Charges in Multi-Billion Dollar Fraud Case

Former FTX CEO Sam Bankman-Fried Faces New Charges in Multi-Billion Dollar Fraud CaseSam Bankman-Fried (SBF), the disgraced co-founder of FTX, faces four more charges after a new indictment was unsealed on Wednesday. The charges include operating an unlicensed money transfer business and conspiring to commit bank fraud. SBF Gets 4 New Charges Tacked Onto His Indictment The former CEO of FTX was originally indicted 72 days ago […]

Crypto Stories: Scott Melker tells the story of how he became The Wolf of All Streets

Binance Australia Derivatives reportedly closes accounts and positions for some users

Binance Australia Derivatives incorrectly classified end users as wholesale investors, according to an investigation into its onboarding services.

Binance Australia Derivatives users reported abrupt notifications sent by the digital asset platform on Feb. 23,  saying it is starting to close certain derivatives positions and accounts. 

According to screenshots posted by various users on Twitter, users who did not meet the requirements to be a “wholesale investor” were told all of their positions would be closed, and they would no longer be able to access the Binance Australia Derivatives Platform.

Users were informed that to continue using Binance Australia’s derivatives platform, they must submit the necessary evidence to meet the requirements to be classified as a “wholesale investor.” 

The notification continued to say that Binance Australia Derivatives is working on a remediation and compensation plan for users to whom it owes any refunds in light of the update.  

It then said the actions that followed were in line with local regulations in Australia, therefore the users were immediately contacted and the affected accounts closed.

Binance Australia Derivatives is the official trading name of Oztures Trading Pty Ltd. The relation to Binance is that its local Australia branch is a corporate authorized representative of Oztures.

Related: Aussie regulator flagged concerns about FTX months before collapse: Report

In its official overview published in July of 2022, it clearly states that derivatives products are offered for Australian wholesale clients only.

Nonetheless, users responded to Binance’s post on Twitter with one Australia-based user claiming that they could no longer stake their crypto due to regional issues. Another claimed that flexible earn was no longer available in Australia, to which the Binance support team responded to look into the issue.

Earlier in February, Australia bolstered its watchdogs for the crypto space as a part of its ‘multi-stage’ plan to fight scams.

Crypto Stories: Scott Melker tells the story of how he became The Wolf of All Streets

Ethereum derivatives data suggests $1,700 might not remain a resistance level for long

ETH derivatives data shows bullish traders becoming more comfortable with the $1,700 price level, creating an opportunity for further rallies.

The price of Ether (ETH) rallied 18% between Feb. 13 and Feb. 16 but has since been range trading near the $1,700 level. Despite the recent price improvement, Ether derivatives metrics remain neutral-to-bullish ponder the investors the tighter regulatory environment and the potential impact of Ethereum’s Shanghai upgrade.

Investors' biggest concern right now is regulation, especially after the United Kingdom’s Financial Stability Board (FSB) recently stated that most stablecoins fail to meet international standards. The entity was created by the G20 and is affiliated with the Bank of International Settlements (BIS). FSB chair Klaas Knot stated that the appropriate regulation of crypto-assets should be "based on the principle of same activity, same risk, same regulation."

In more positive news, there has been some improvement in China after the government is reportedly taking a softer approach to Hong Kong’s crypto hub aspirations. According to a Feb. 20 Bloomberg report, representatives from China have been frequenting Hong Kong crypto gatherings seeking to understand local crypto business operations.

A recent Binance report detailed the status of Ether staking and explored why the Shanghai upgrade may not result in the ETH sell pressure that some traders have predicted. Their rationale is based on liquid staking derivatives, which allow users to benefit from staked Ether while retaining the ability to sell the derivative token.

Let's look at Ether derivatives data to understand if the $1,700 price rejection has impacted crypto investors' sentiment.

ETH futures show higher demand for leverage longs

The two-month futures annualized premium should trade between 4% to 8% in healthy markets to cover costs and associated risks. However, when the contract trades at a discount versus regular spot markets, it shows a lack of confidence from traders and isa bearish indicator.

Ether 2-month futures annualized premium. Source: Laevitas.ch

The chart above shows that derivatives traders are no longer neutral-to-bearish after the Ether futures premium exceeded the 4% threshold. More importantly, it shows resilience even as ETH failed to sustain the $1,700 support on Feb. 21.

The lessened demand for leverage shorts (bears) does not necessarily translate to an expectation of positive price action. Traders should analyze Ether's options markets to understand how whales and market makers are pricing the odds of future price movements.

Options risk metrics move away from bearish sentiment

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection.

In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 10%. On the other hand, bullish markets tend to drive the skew metric below -10%, meaning the bearish put options are in less demand.

Ether 30-day options 25% delta skew: Source: Laevitas.ch

The delta skew flirted with the bearish 10% level on Feb. 14, signaling stress from professional traders. However, the situation improved through the week as the index moved close to 0 — indicating similar upside and downside risk appetite.

Currently, options and futures markets point to pro traders moving to a neutral-to-bullish sentiment, displaying higher odds of ETH breaking above the $1,700 resistance. Consequently, the odds favor Ether bulls as investors remained calm despite the regulatory pressure and negative emotions associated with the upcoming Shanghai upgrade.

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.

Crypto Stories: Scott Melker tells the story of how he became The Wolf of All Streets

Are stablecoins securities? Well, it’s not so simple, say lawyers

One lawyer said that while stablecoins are meant to be stable, buyers may possibly profit from a range of arbitrage, hedging, and staking opportunities.

Recently reported planned enforcement action against Paxos by the United States Securities and Exchange Commission (SEC) over Binance USD (BUSD) has many in the community questioning how the regulator could see a stablecoin as a security.

Blockchain lawyers told Cointelegraph that while the answer isn't black and white, there exists an argument for it if the stablecoin was issued out in the expectation of profits or are derivatives of securities.

A report from the Wall Street Journal on Feb. 12 revealed that the SEC is planning to sue Paxos Trust Company in relation to its issuance of Binance USD, a stablecoin it created in partnership with Binance in 2019. Within the notice, the SEC reportedly alleges that BUSD is an unregistered security.

Senior Lecturer Dr. Aaron Lane of RMIT’s Blockchain Innovation Hub told Cointelegraph that while the SEC may claim these stablecoins to be securities, that proposition hasn’t been conclusively tested by the U.S. Courts:

“With stablecoins, a particularly contentious issue will be whether the investment in the stablecoin led a person to an expectation of profit (the ‘third arm’ of the Howey test).”

“On a narrow view, the whole idea of the stablecoin is that it is stable. On a broader view, it could be argued that arbitrage, hedging, and staking opportunities provide an expectation of profit,” he said.

Lane also explained that a stablecoin may fall under U.S. securities laws in the event that it is found to be a derivative of a security.

This is something that SEC Chairman Gary Gensler emphasized strongly in July 2021 in a speech to the American Bar Association Derivative and Futures Law Committee:

“Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities.”

“These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime,” he said at the time.

However Lane stressed that ultimately each case “will turn on its own facts,” particularly when adjudicating on an algorithmic stablecoin as opposed to a crypto or fiat-collateralized one.

A recent post by Quinn Emanuel Trial Lawyers has also approached the subject, explaining that in order to “ramp up” stablecoins to a “stable value,” they may sometimes be offered on discounted prior to sufficiently stabilizing.

“These sales may support an argument that initial purchasers, despite formal disclaimers by issuers and purchasers alike, buy with the intent for resale following stabilization at the higher price,” it wrote.

Are Stablecoins Securities? A legal analysis from Quinn Emanuel Trial Lawyers. Source. Quinn Emanuel.

But while stablecoin issuers may resort to the courts to decide the dispute, many believe the SEC’s “regulation by enforcement” approach is simply uncalled for.

Digital assets lawyer and partner Michael Bacina of Piper Alderman told Cointelegraph that the SEC should instead provide “sensible guidance” to help the industry players who are seeking to be legally compliant:

“Regulation by enforcement is an inefficient way of meeting policy outcomes, as SEC Commissioner Peirce has recently observed in her blistering dissent in relation to the Kraken prosecution. When a rapidly growing industry doesn’t fit the existing regulatory framework and has been seeking clear pathways to compliance, then engagement and sensible guidance is a far superior approach than resorting to lawsuits.”

Cinneamhain Ventures partner Adam Cochran gave another view to his 181,000 Twitter followers on Feb. 13, noting that the SEC can sue any company that issues financial assets under the much broader Securities Act of 1933:

The digital asset investor then explained that the SEC isn’t restricted to the Howey Test:

“The fact that these assets hold underlying treasuries, makes them a lot like a money market fund, exposing holders to a security, even if they don't earn from it. Making an argument (not one I agree with, but a reasonable enough one) that they can be a security.”

“Worth fighting tooth and nail, but everyone who is shrugging this off as "lol the SEC got it wrong, this doesn't pass the Howey test" needs to re-eval. The SEC, believe it or not, has knowledgeable securities counsel,” he added.

Related: SEC chair compares stablecoins to casino poker chips

The latest reported planned action from the SEC comes after reports emerged on Feb. 10 that Paxos Trust was being investigated by the New York Department of Financial Services for an unconfirmed reason.

Commenting on the initial reports, a spokesperson for Binance said BUSD is a "Paxos issued and owned product" with Binance licensing its brand to the firm for use with BUSD. It added Paxos is regulated by the New York Department of Financial Services (NYDFS) and that BUSD is a "1 to 1 backed stablecoin."

"Stablecoins are a critical safety net for investors seeking refuge from volatile markets and limiting their access would directly harm millions of people across the globe," the spokesperson added. "We will continue to monitor the situation. Our global users have a wide array of stablecoins available to them.”

Crypto Stories: Scott Melker tells the story of how he became The Wolf of All Streets

CFTC’s Johnson urges Congress to expand commission’s crypto oversight powers

Commodity Futures Trading Commission Kristin Johnson wants to protect customers in a way that reduces the risk of future crises.

Commodity Futures Trading Commission (CFTC) Commissioner Kristin Johnson has urged Congress to adopt legislation that "closes the current gap in the oversight of crypto spot markets."

During a speech at a digital assets conference at Duke University on Jan. 21, Johnson proposed a number of amendments that would enable the CFTC to conduct “effective due diligence” on businesses, including crypto firms, that want to acquire CFTC-regulated entities.

The commissioner also wants expanded powers for the commodities regulator to enhance customer protection, prevent liquidity crises and mitigate conflicts of interest.

CFTC Commissioner Kristin Johnson. Source: YouTube

One of these potential changes would be to give the commodities regulator new powers to investigate any business that wants to purchase 10% or more of a CFTC-registered exchange or clearinghouse.

Johnson highlighted the example of derivatives exchange LedgerX, which became a subsidiary of FTX on Aug. 31, 2021 and is now wrapped up in the crypto exchange’s collapse.

The commissioner notes that the regulator currently has no ability to conduct due diligence on whichever firm buys the business and is merely a passenger as the exchange goes through the sales process.

Johnson also addressed co-mingling of customer funds, which was one of the more egregious accusations levied at FTX following its collapse — calling for regulation that formalizes the obligation of crypto firms to segregate customer funds.

Related: FTX VCs liable to ‘serious questions’ around due diligence — CFTC Commissioner

Another gap pointed out by Johnson was in risk management procedures, pointing to the contagion that has continued to spread after major crypto company collapses, such as FTX: 

“Interconnectedness among crypto-firms amplified by fragile or non-existent risk management, corporate governance failures, and conflicts of interests at individual firms fuels the likelihood of crises.”

The commissioner suggested that current “frameworks such as anti-trust law and regulation may prove too limited in scope” in increasingly diverse markets and is advocating for “tailored and effective governance, and risk management controls.”

Crypto Stories: Scott Melker tells the story of how he became The Wolf of All Streets

Stablecoin data points to ‘healthy appetite’ from bulls and possible Bitcoin rally to $25K

Bitcoin price continues to press higher this week as demand for stablecoins and a key BTC price metric suggests bulls have a “healthy appetite.”

Bitcoin (BTC) rallied 11% between Jan. 20 and Jan. 21, reaching the $23,000 level and shattering bears' expectations for a pullback to $20,000. Even more notable is the move brought demand from Asia-based retail investors, according to data from a key stablecoin premium indicator.

Traders should note that the tech-heavy Nasdaq 100 index also gained 5.1% between Jan. 20 and Jan. 23, fueled by investors' hope in China reopening for business after its COVID-19 lockdowns and weaker-than-expected economic data in the U.S. and the Eurozone.

Another bit of bullish information came on Jan. 20 after U.S. Federal Reserve Governor Christopher Waller reinforced the market expectation of a 25 basis point interest rate increase in February. A handful of heavyweight companies are expected to report their latest quarterly earnings this week to complete the puzzle, including Microsoft, IBM, Visa, Tesla and Mastercard.

In essence, the central bank is aiming for a “close landing,“ or a controlled decline of the economy, with fewer job openings and less inflation. However, if companies struggle with their balance sheets due to the increased cost of capital, earnings tend to nosedive and ultimately layoffs will be much higher than anticipated.

On Jan. 23, on-chain analytics firm Glassnode pointed out that long-term Bitcoin investors held losing positions for over a year, so those are likely more resilient to future adverse price movements.

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

The Asia-based stablecoin premium nears the FOMO area

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 103%, 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 103.5%, up from 98.7% on Jan. 19, signaling higher demand for stablecoin buying from Asian investors. The movement coincided with Bitcoin's 11% daily gain on Jan. 20 and indicates moderate FOMO by retail traders as BTC price approached $23,000.

Pro traders are not particularly excited after the recent gain

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

The first trend one can spot is Huobi and Binance's top traders being extremely skeptical of the recent rally. Those whales and market makers did not change their long-to-short levels over the last week, meaning they are not confident about buying above $20,500, but they are unwilling to open short (bear) positions.

Interestingly, top traders at OKX reduced their net longs (bull) until Jan. 20 but drastically changed their positions during the latest phase of the bull run. Looking at a longer 3-week time frame, their current 1.05 long-to-short ratio remains lower than the 1.18 seen on Jan. 7.

Related: Bitcoin miners’ worst days may have passed, but a few key hurdles remain

Bears are shy, providing an excellent opportunity for bull runs

The 3.5% stablecoin premium in Asia indicates a higher appetite from retail traders. Additionally, the top traders' long-to-short indicator shows no demand increase from shorts even as Bitcoin reached its highest level since August.

Furthermore, the $335 million liquidation in short (bear) BTC futures contracts between Jan. 19 and Jan. 20 signals that sellers continue to use excessive leverage, setting up the perfect storm for another leg of the bull run.

Unfortunately, Bitcoin price continues to be heavily dependent on the performance of stock markets. Considering how resilient BTC has been during the uncertainties regarding the bankruptcy of Digital Currency Group's Genesis Capital, the odds favor a rally toward $24,000 or $25,000.

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

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 Stories: Scott Melker tells the story of how he became The Wolf of All Streets