Bitcoin (BTC) price had a mixed reaction on Dec. 9 after the November United States producer price report showed a 7.4% increase from 2021. The data suggested wholesale costs could continue to rise and inflation could linger longer than investors previously thought. Oil prices also remained a focus for investors, with Crude Oil WTI hitting a new yearly low of $71.10 on December 8th.
The United States Dollar Index (DXY), a measure of the dollar’s strength against a basket of major foreign currencies, held the 104.50 level, but the index traded at 104.10 on December 4, a 5-month high Deep. This signals low confidence in the US Federal Reserve’s ability to contain inflation without triggering a significant recession.
Trader Gutsareon noted that the choppy activity caused leverage longs and shorts to be liquidated, but a failed preliminary dump below $17,050 followed.
#BTC
good study case
First late shorts were taken out on the push…then late longs on the flush…then longs again on the PPI number…then shorts again…then an “unusual” low with little to no change in OI
Rollercoaster pic.twitter.com/Qju1eOuNMX
— Peter (@gutsareon) December 9, 2022
According to the analysis, stagnation in open interest in futures contracts indicated low bear confidence.
Regulatory uncertainty may have played a key role in limiting Bitcoin’s upside potential. On Dec. 8, the United States Securities and Exchange Commission (SEC) released new guidance that could result in public companies disclosing their exposure to crypto assets.
The SEC’s corporate finance division said that the recent crisis in the crypto-asset industry has “caused widespread disruption” and that U.S. companies may have disclosure requirements under federal securities laws to disclose whether these events could affect their business .
Let’s take a look at derivatives metrics to better understand how professional traders are positioned in the current market conditions.
Bitcoin margin longs faced a drastic surge
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 bitcoin. On the other hand, Bitcoin borrowers can only short the cryptocurrency by betting on a falling price. 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 from December 4th to 9th, suggesting that professional traders are still maintaining their leveraged longs even after several failed attempts to break the $17,300 resistance. have increased.
Currently at 35, the metric makes a strong case for stablecoin borrowing and indicates that shorts are not confident about building bearish leverage positions.
Options traders remain risk-averse
Traders should analyze options markets to understand if Bitcoin will eventually succumb to bearish news flow. 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.
Bitcoin 60-Day Options 25% Delta Skew: Source: Laevitas
As shown above, the 25% delta skew improved between December 4th and 9th, showing that options traders have reduced their risk aversion to unexpected price declines. However, at the current 15%, the delta skew signals that investors remain fearful as market makers are less involved in downside protection.
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On the one hand, the lack of rising open interest seems encouraging as Bitcoin tested the intraday low on Dec. 9. Still, the overuse of margin suggests buyers may be forced to trim positions on surprise downsides.
The longer it takes for Bitcoin to reclaim $18,000, the riskier it becomes for leveraged margin longs. Traditional markets continue to play an integral role in setting the trend, so a potential retest to $16,000 cannot be ruled out.
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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