Many people may have already forgotten that Bitcoin (BTC) closed 2022 at $16,529 and the recent bounce and rejection at the $25,000 level could raise concerns among certain investors. The bears are pulling back towards the $25,000 level, and there have been multiple failed attempts at the level between February 16-21. Currently, it looks like the resistance at $23,500 continues to gain strength with each new test.
It's not self-evident to pinpoint the reason behind Bitcoin's 45.5% gain so far this year, but part of it stems from the US Federal Reserve's inability to curb inflation while raising interest rates. to its highest level in 15 years. The unintended consequence is a higher payment of the public debt and this adds more pressure to the budget deficit.
It's virtually impossible to predict when the Fed will change its stance, but with the debt to gross domestic product ratio above 128, it shouldn't take more than 18 months. At some point, the value of the US dollar itself could be threatened due to extreme debt leverage.
On February 23, the Fed, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a joint statement statement encourage US banks that rely on funding from the cryptocurrency sector to avoid liquidity runs by maintaining strong risk management practices. Regulators said the report was prompted by "recent events" in the industry due to increased volatility risks.
Let's look at derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Bitcoin margined longs were used to defend the $24,000 level
Margin markets provide information on how professional traders are positioning because it allows investors to borrow cryptocurrencies to take advantage of their positions.
For example, one can increase exposure by borrowing stablecoins to buy Bitcoin (long). On the other hand, Bitcoin borrowers can only bet against (short) the cryptocurrency. Unlike futures contractsthe balance between long and short margins is not always the same.
The chart above shows that OKX traders' margin lending index increased between February 21 and 23, indicating that professional traders added leverage long positions when the price of Bitcoin fell below $24,000.
It could be argued that excessive demand for bullish margin positioning looks like a desperate move after the failed attempt to break the $25,000 resistance on Feb 21. However, the unusually high stablecoin/BTC margin lending ratio tends to normalize after traders post additional collateral after a few days.
Options traders are more confident with downside risks
Traders should also analyze the options markets to understand if the recent rally has caused investors to become more risk averse. The 25% delta bias is a tell-tale sign any time arbitrage desks and market makers overcharge for upside or downside protection.
The indicator compares similar call and put options and will turn positive when fear prevails because the protective premium on put options is higher than risky call options.
In short, the bias metric will move above 10% if traders fear a Bitcoin price drop. On the other hand, the general enthusiasm reflects a negative bias of 10%.
Related: IMF executive board endorses crypto policy framework, including non-crypto as legal tender
Note that the 25% delta bias turned slightly negative since Feb 18 after options traders felt more confident and support at $23,500 strengthened. A skewed reading of -5% denotes balanced demand between bullish and bearish options instruments.
The derivatives data shows an unusual combination of excessive margin demand for long positions and a neutral risk assessment by options traders. However, there is nothing worrisome about that as long as the stablecoin/BTC ratio returns to levels below 30 in the coming days.
Considering that regulators have been putting enormous pressure on the cryptocurrency sector, Bitcoin derivatives are holding up well. For example, on February 22, the general manager of the Bank for International Settlements, Agustรญn Carstens stressed the need to regulate and risk management in the crypto space. The limited impact of the BIS statement on price is a bullish sign and possibly increases the odds that Bitcoin price breaks above $25,000 anytime soon.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
The views, thoughts and opinions expressed here are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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