Bitcoin price derivatives are looking a little overheated, but the data suggests the bears are outnumbered

Bitcoin (BTC) price surged over 12% on Feb. 15, marking its highest daily close in more than six months. Curiously, the move took place as gold hit a 40-day low of $1,826, suggesting a possible shift in investors’ risk sentiment towards cryptocurrencies.

A stronger-than-expected U.S. inflation report on Feb. 14 showed 5.6% year-on-year growth, followed by data showing resilient consumer demand, prompting traders to reconsider Bitcoin’s rarity value. US retail sales rose 3% mom in January — the fastest gain in nearly two years.

On-chain data shows that the recent gains can be traced back to a mysterious institutional investor who started buying on Feb. 10. Almost $1.6 billion in funds flowed into the crypto market between February 10 and February 15, according to Lookonchain’s data. The analysis showed that three notable 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 impose penalties and settle any pending US regulatory and criminal investigations, according to a Feb. 15 Wall Street Journal report. The exchange’s chief strategy officer, Patrick Hillmann, added that Binance is “very confident and feels really 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 entered “FOMO” territory

Margin markets shed light on how professional traders are positioned as they allow investors to borrow cryptocurrency to leverage their positions.

For example, one can increase engagement by borrowing stablecoins to buy (long) bitcoin. On the other hand, Bitcoin borrowers can only bet against (short) the cryptocurrency. Unlike futures contracts, the balance between longs and shorts on margin is not always even.

OKX stablecoin/BTC margin lending ratio. Source: OKX

The chart above shows that OKX traders’ Margin Lending Ratio increased between Jan. 13 and 15, suggesting that professional traders established leveraged long positions as bitcoin price broke the $23,500 resistance broke through.

One could argue that the demand for stablecoin lending is overstated for a bullish positioning as a stablecoin/BTC margin borrowing ratio above 30 is uncommon. However, traders tend to post more collateral after a few days or weeks, causing the indicator to exit the FOMO level.

Options traders remain skeptical of a sustained rally

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

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

In short, the skew metric will hover above 10% as traders fear a bitcoin price crash. On the other hand, general excitement reflects a negative 10% skewness.

Related: $24,000 Bitcoin – Is It Time to Buy BTC and Altcoins? Follow market talks live

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

Note that the 25% delta skew has been neutral for the past two weeks, indicating equal prices for bullish and bearish strategies. This reading is highly unusual considering Bitcoin is up 16.2% from Jan. 13 to Jan. 16, and normally one would expect excessive bullish action causing the skew to hover below minus 10 .

One thing is for sure, the lack of bearish sentiment exists in the futures and options markets. Still, there is some worrying data about excessive margin demand for leverage buying, although it’s too early to call it worrying.

The longer Bitcoin stays above $24,000, the more comfortable these pro traders are with the current rally. Additionally, between Jan. 15 and Jan. 16, $235 million was liquidated by bears using futures markets, leading to a waning appetite for bearish bets. Hence, derivatives markets continue to favor bullish momentum.

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

The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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