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April 21, 2023 Bitcoin.com

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Healthy Bitcoin rally: What does a margin lending ratio drop mean for BTC price?

April 15, 2023 Coin Telegraph

Analysis

Will $30,000 BTC price hold? Bitcoin market structure remains bullish with another 10% gain on the table as sellers refrain from shorting.

Bitcoin (BTC) price rallied over 10% between April 9 and April 14, marking the highest daily close in more than ten months. While some analysts may argue the move justifies a degree of decoupling from traditional markets, both the S&P 500 and gold are near their highest levels in over six months.

Bitcoin price breaks $30,000 despite macro headwinds

Bitcoin’s gains and rally above $30,000 also happened while the dollar strength index (DYX), which measures the U.S. currency against a basket of foreign exchanges, reached its lowest level in 12 months.

The indicator fell to 100.8 on April 14 from 104.7 one month prior as investors priced in higher odds of further liquidity injections by the Federal Reserve.

The latest Federal Reserve’s monetary policy meeting minutes, released on April 12, made explicit reference to the anticipation of a “mild recession” later in 2023 due to the banking crisis. Even if inflation is no longer a primary concern, the monetary authority has little room to raise interest rates further without escalating an economic crisis.

Even if inflation is no longer a primary concern, the monetary authority has little room to raise interest rates further without escalating an economic crisis.

Strong macroeconomic data explains investors’ bullishness

While the global economy may deteriorate in the coming months, recent macroeconomic data has been mostly positive. For example, the European Union's statistics office reported that industrial production in the 20 member countries increased 1.5% month on month in February, whereas economists polled by Reuters expected a 1.0% increase.

Furthermore, China's latest macroeconomic data showed an encouraging trend, with exports increasing 14.8% year on year in March, snapping a five-month decline and surprising economists who expected a 7% decline. As a result, China's trade balance for March was $89.2 billion, far exceeding the $39.2 billion market consensus.

The contrast between the current economic momentum and the forthcoming recession triggered by higher financing costs and a reduced appetite for risk among lenders causes Bitcoin investors to question the sustainability of the $30,000 support.

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

BTC derivatives show no excessive leverage from longs

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

OKX, for instance, provides a margin lending indicator based on the stablecoin/BTC ratio. 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.

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

The above chart shows that OKX traders' margin lending ratio decreased between April 9 and April 11. That is extremely healthy as it shows no leverage has been used to support Bitcoin's price gains, at least not using margin markets. Moreover, given the general bullishness of crypto traders, the current margin lending ratio of 15 is relatively neutral.

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*

Interestingly, despite Bitcoin breaking $30,000 for the first time in 10 months, pro traders have kept their leverage long positions unchanged, according to the long-to-short indicator.

For instance, the ratio for Huobi traders stood firm near 0.98 from April 9 until April 14. Meanwhile, at crypto exchange Binance, the long-to-short slightly increased, favoring longs, moving from 1.12 on April 9 to the current 1.14. Lastly, at crypto exchange OKX, the long-to-short ratio slightly declined, from 1.00 on April 9 to the current 0.91.

Moreover, Bitcoin futures traders were not confident enough to add leveraged bullish positions. Thus, even if Bitcoin price retests $29,000 in terms of derivatives, bulls should be unconcerned because there has been little demand from short-sellers and no excessive leverage from buyers.

In other words, Bitcoin's market structure is bullish, where BTC price can easily rally another 10% to $33,000 given sellers are currently scared to short it.

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 data shows bulls positioning for further BTC price upside

April 13, 2023 Coin Telegraph

Coin Telegraph

BTC price continues to show strength and derivatives data suggests that bulls intend to press Bitcoin higher.

Bitcoin (BTC) price maintained the $30,000 support as lower-than-expected U.S. Consumer Price Index (CPI) data released on April 12. The official inflation rate for March increased 5% year on year, which was slightly less than the 5.1% consensus. It was the lowest reading since May 2021, but is still significantly higher than the Federal Reserve's 2% target.

The data suggests that inflation is no longer the driving force behind Bitcoin’s rally and Investors' focus shifted from the impact of inflationary pressure to potential recession risks after the banking crisis revealed how fragile the financial system was following the Federal Reserve's twelve-month hike in interest rates from 0.10% to 4.85%.

Aside from the Silicon Valley Bank bankruptcy and the government-backed sale of Credit Suisse to UBS, several warning signs of a macroeconomic downturn have emerged.

The most recent ISM Purchasing Managers Index data fell to its lowest level since May 2020, indicating an economic contraction. According to Federal Reserve documents released on April 12, the aftermath of the U.S. banking crisis is likely to push the economy into a "mild recession" later this year. Because of the crisis, some have speculated that the Fed will hold off on raising interest rates, but officials affirmed that more effort is needed to keep inflation under control.

According to a Moody's Analytics report, commercial real estate prices fell 1.6% in February, the most since the 2008 financial crisis. Furthermore, the national office vacancy rate reached 16.5%, indicating the severity of the economic difficulties that businesses are currently facing.

Whatever the reason for Bitcoin's 50% rally between March 11 and April 11, it demonstrates resilience to FUD, including the SEC's Wells Notice against Coinbase on March 22, and the CFTC filing a suit against Binance and its CEO Changpeng Zhao on March 27. By holding the $30,000 support, Bitcoin demonstrates that the positive momentum can continue regardless of whether inflation remains above 5%.

Bulls are better positioned for the weekly BTC options expiry

Not everyone is cheering the rally, particularly traders who have placed bearish bets using Bitcoin options. The April 14 open interest for BTC options expiry is $950 million, with $490 million in call (buy) options and $460 million in put (sell) options. Bears have been caught off guard, with less than 7% of their bets exceeding $29,000.

*Bitcoin options aggregate open interest for April 14. Source: CoinGlass*

Below are the four most likely scenarios based on the current price action. The number of call (buy) and put (sell) options contracts available on April 14 varies depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

Between $28,000 and $29,000: 2,600 calls vs. 1,800 puts. The net result is balanced between call and put options.
Between $29,000 and $30,000: 6,700 calls vs.500 puts. The net result favors the call (buy) instruments by $110 million.
Between $30,000 and $30,500: 8,500 calls vs. 200 puts. Bulls increase their advantage to $250 million.
Between $30,500 and $31,500: 11,300 calls vs. 100 puts. Bulls' advantage increases to $350 million.

This rough estimate considers only call options in bullish bets and put options in neutral-to-bearish trades. Nonetheless, this oversimplification excludes more complex investment strategies. A trader, for example, could have sold a put option, effectively gaining positive exposure to Bitcoin above a certain price, but this effect is difficult to estimate.

Bears are unlikely to reverse their situation

Bulls are expected to push Bitcoin above $30,500 on April 14 at 8:00 a.m UTC to profit an additional $100 million. Bears, on the other hand, would need to pressure Bitcoin's price below $29,000 in order to balance the scales. However, bears have recently suffered significant losses as BTC futures short contracts were forcibly liquidated to the tune of $128 million between April 9 and April 11.

As the most likely scenario favors Bitcoin bulls, their profits will most likely be used to reinforce the $30,000 support. Bears might consider licking their wounds and waiting for additional actions from regulators as the macroeconomic scenario is currently bullish for supply capped assets.

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.