$43K BTC flipping support? Not anytime soon, according to derivative metrics

Published at: March 23, 2022

Bitcoin (BTC) showed strength on March 22, posting a 5% gain and testing the $43,000 resistance. The move liquidated over $150 million worth of leverage short positions, those betting on a declining price using futures contracts.

Some Twitter analysts attribute the price improvement to the Do Kwon, the co-founder of blockchain protocol Terra. During a recent Twitter Spaces conversation with analyst Udi Wertheimer, Kwon revealed his plans to back the TerraUSD stablecoin with Bitcoin.

Terra's co-founder said "the current clip that we have to buy Bitcoin is about $3 billion and will add to that," causing markets to get agitated on March 21 when some observers attributed a $125 million Tether (USDT) transaction to Kwon. 

Margin traders are still going long

Margin trading allows investors to borrow cryptocurrency to leverage their trading position, increasing returns. For example, one can buy cryptocurrencies by borrowing Tether and increasing their exposure.

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 traders have been borrowing more BTC recently, as the ratio decreased from 15 on March 20 to the current 7.5. Even though the data remains bullish as the indicator favors stablecoin borrowing, it reached the lowest level since March 9. Considering crypto traders are usually bullish, a margin lending ratio below 3 is deemed unfavorable. Thus, the current level remains positive, just less confident than two days ago.

Option markets did not shift recently

Currently, it's somewhat difficult to discern a direction in the market. Still, the 25% delta skew is a telling sign whenever arbitrage desks and market makers overcharge for upside or downside protection. The 25% delta skew compares similar call (buy) and put (sell) options. The metric will turn positive when fear is prevalent because the protective put options premium is higher than similar risk call options.

The skew indicator will move above 8% if traders fear a Bitcoin price crash. On the other hand, generalized excitement reflects a negative 8% skew.

As displayed above, we exited the 8% "fear" mode on March 9 and entered a neutral area since then. Still, Tuesday's 5% rally was not enough to shift the options skew to a neutral-to-bullish zone.

Related: Bitcoin hash rate may see ‘small capitulation’ with difficulty set for new all-time high

Despite the not-so-positive indicator from Bitcoin options, these arbitrage desks and market makers will be forced to reverse bearish positions once the price breaks $45,000 and changes the current trend.

The OKX margin lending rate showed pro traders reducing their bullish bets after a 13% BTC price rally in 10 days, so derivatives data provides a slightly bearish view. For this reason, expecting a pump above $43,000 right now seems a bit too optimistic.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Tags
Bitcoin
Markets
Derivatives
Bitcoin Options
Leverage
Terra
Related Posts
Bitcoin futures enter backwardation for the first time in a year
Bitcoin's (BTC) month-to-date chart is very bearish, and the sub-$18,000 level seen over the weekend was the lowest price seen since December 2020. Bulls' current hope depends on turning $20,000 to support, but derivatives metrics tell a completely different story as professional traders are still extremely skeptical. It’s important to remember that the S&P 500 index dropped 11% in June, and even multi-billion dollar companies like Netflix, PayPal and Caesars Entertainment have corrected with 71%, 61% and 57% losses, respectively. The U.S. Federal Open Market Committee raised its benchmark interest rate by 75 basis points on June 15, and Federal …
Bitcoin / June 20, 2022
Bitcoin bulls aim to capture $45K leading into Friday’s $890M BTC options expiry
Bitcoin (BTC) bulls flipped the table on Friday's options expiry after a 14% rally on Feb. 28. Holding the price above $43,000 confirms a decoupling from traditional markets. For instance, the MSCI Emerging Markets equities index is down by 3.5% in 5 days, while the United States Russell 2000 small-capitalization index gained 0.9%. Investors are increasingly concerned about the ramifications of the U.S. Federal Reserve rate hikes expected throughout 2022. As a result, in the past 30 days some big names took a hit. For instance, Paypal PYPL traded down 38%, META corrected 34%, and Shopify SHOP lost 31.5%. The …
Bitcoin / March 3, 2022
Bitcoin traders anticipate new yearly lows after BTC’s $25K rejection — Data disagrees
Bitcoin (BTC) showed weakness on Aug. 15, posting a 5% loss after testing the $25,000 resistance. The move liquidated over $150 million worth of leverage long positions and has led some traders to predict a move back toward the yearly low in the $18,000 range. The price action coincided with worsening conditions for tech stocks, including Chinese giant Tencent, which is expected to post its first-ever quarterly revenue decline. According to analysts, the Chinese gaming and social media conglomerate is expected to post quarterly earnings around $19.5 billion, which is 4% lower than the previous year. Moreover, on Aug. 16, …
Bitcoin / Aug. 16, 2022
3 major mistakes to avoid when trading crypto futures and options
Novice traders are usually drawn to futures and options markets due to the promise of high returns. These novice traders watch influencers post incredible gains and at the same time multiple advertisements from derivatives exchanges that offer 100x leverage are at times irresistible for most. Although traders can effectively increase gains by recurring derivatives contracts, a few mistakes can quickly turn the dream of outsized gains into nightmares and an empty account. Even experienced investors in traditional markets fall victim to specific issues in cryptocurrency markets. Cryptocurrency derivatives function similarly to traditional markets because buyers and sellers enter into contracts …
Bitcoin / Nov. 1, 2022
Total crypto market cap falls to $840 billion, but derivatives data shows traders are neutral
The total cryptocurrency market capitalization dropped 1.5% in the past seven days to rest at $840 billion. The slightly negative movement did not break the ascending channel initiated on Nov. 12, although the overall sentiment remains bearish and year-to-date losses amount to 64%. Bitcoin (BTC) price dropped 0.8% on the week, stabilizing near the $16,800 level at 10:00 UTC on Dec. 8 — even though it eventually broke above $17,200 later on the day. Discussions related to regulating crypto markets pressured markets and the FTX exchange collapse limited traders' appetites, causing lawmakers to turn their attention to the potential impact …
Bitcoin / Dec. 8, 2022