Professional Bitcoin Traders Heat Up The $24,000 Level, Suggesting The Current BTC Rally Has Legs

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On February 1 and 2, the price of bitcoin (BTC) exceeded even the most bullish price projections after the US Federal Reserve (FED) announced its intention to raise interest rates by 25 basis points.

Even though Fed Chairman Jerome Powell told investors not to wait for interest rate cuts in 2023, during his press conference he made it clear that jobs data is currently at the center of concerns.

The results of the ADP payroll survey revealed on February 1 that hiring in the American private sector had been markedly slower in January. ADP’s measure of private sector payrolls was 106,000, well below market consensus of 160,000. This data fueled investor expectations of future interest rate hikes by the FED in the coming months. ‘coming.

After testing the $22,500 support on February 1, Bitcoin gained 6.5% in five hours and has been flirting with the $24,000 level ever since. While the recent gains are exciting, traders should note that improving crypto market sentiment has followed the risk attitude seen in traditional markets.

Negative operating margin stocks showed significant gains on Feb. 2, including Coinbase (COIN) 20%, Cloudflare (NET) 15%, Unity Software (U) 12%, and DoorDash (DASH) 10%. This factor alone should be a warning sign that the gains of the past few weeks may not be sustainable. It’s also important to remember that Bitcoin’s 40-day correlation to the S&P 500 remains above 75%.

Potential regulatory headwinds could also have played a vital role in supporting Bitcoin’s rise. Huang Yiping, a former member of the People’s Bank of China (PBoC) Monetary Policy Committee, recently argued that a permanent crypto ban could lead to many missed opportunities.

Huang, now an economics professor at Peking University’s National School of Development, criticized bitcoin for its lack of intrinsic value, but noted that crypto-related technologies are highly valuable to regulated financial systems. .

Let’s look at derivatives metrics to understand if professional traders added leverage positions after the recent Bitcoin price breakout.

Bitcoin Margin Traders Brace for $22,500 Support

Margin markets provide insight into the position of professional traders, as they allow 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 sell the cryptocurrency because they are betting on its price falling. Unlike futures contracts, the balance between long and short margins is not always equal.

OKX stablecoin/BTC margin lending ratio. Source: OKX

The chart above shows that OKX traders’ margin lending ratio increased significantly on January 30, signaling that professional traders added leverage long after Bitcoin successfully rebounded from testing the 22,500 support. $.

More importantly, January 29 marked the lowest level of the indicators in more than eleven weeks at 13 favoring stable borrowing by a wide margin, this indicates that shorts are not confident about building leverage positions. bearish leverage. Currently at 24, it is clearly evident that the bulls are becoming more comfortable with the current $22,500 support.

Related: Community mocks Charlie Munger for his obsession with China’s Bitcoin ban

Options traders flirt with an optimistic bias

Traders should also analyze the options markets to understand if the recent rally has caused investors to become more risk averse. The 25% delta skew is a telltale sign whenever arbitrage desks and market makers overcharge for upside or downside protection.

The indicator compares similar call (call) and put (sell) options and turns positive when fear prevails, because the protection premium of put options is higher than that of risky call options.

In short, the bias measure will jump above 10% if traders fear a Bitcoin price crash. In contrast, generalized excitement reflects a negative bias of 10%.

Bitcoin options 60 days 25% delta skew: Source: Laevitas

The 25% delta bias has been relatively calm near minus 5, indicating similar downside and upside odds from options traders. On the bright side, even the January 31 retest of $22,500 was not enough to break the spirits of the bulls. Combined with the lack of demand from margin traders keen to short Bitcoin, derivatives markets paint a bullish picture.

Even though it takes a bit longer (maybe a few days) to break above $24,000, there are no signs of stress coming from the Bitcoin margin and options markets. However, traditional markets continue to play a vital role in setting the trend, so Bitcoin investors should not become overconfident.

The views, thoughts and opinions expressed herein are the sole authors 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.

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