This week, stock markets started showing some green as bitcoin (BTC) decoupled from traditional markets, but not in a good way. The cryptocurrency is down 3% while the high-tech Nasdaq Composite stock index is up 3.1%.
May 27 data from the US Department of Commerce show that the personal savings rate fell to 4.4% in April to its lowest level since 2008 and cryptocurrency traders fear that macro conditions will worsen and global markets could worsen make investors doubt your risky assets.
For example, Invesco QQQ Trust, a $ 160 billion US-based exchange-traded fund of technology companies, is down 23% year to date. Meanwhile, the iShares MSCI China ETF, a $ 6.1 billion Chinese equity tracking index, fell 20% in 2022.
Investors should analyze bitcoin derivative indicators to get a clearer picture of how cryptocurrency traders are positioned.
Margin traders are becoming increasingly optimistic
Margin trading allows investors to borrow cryptocurrency and leverage their trading position to increase returns. For example, one can buy cryptocurrencies by borrowing Tether (USDT) to increase exposure.
Bitcoin borrowers can only sell the cryptocurrency short if they bet on a fall in price, and unlike futures, the balance between margin lending and short selling is not always removed.
The chart above shows that traders are borrowing more Tether USD recently as the ratio has fallen from 13 on 25 May to 20 at present. The higher the indicator, the more confident the professional traders are in the bitcoin price.
It should be noted that the margin loan ratio of 29 reached on May 18 was the highest level for more than six months and showed a bullish mood. On the other hand, margin lending ratio of the USDT / BTC pair below 5 is generally a bearish signal.
Options markets have undergone “massive screening”
To exclude market-specific externalities from margins, traders should also analyze the price of bitcoin options. The 25% delta skew compares similar call and send options. The indicator becomes positive when the fear is at the forefront, because the premium of protection options is higher than that of co-risk call options.
The opposite occurs when greed prevails, which pushes a 25% delta asymmetry indicator into the negative zone. In short, if traders fear a bitcoin price crash, the skewed indicator will move above 8%. On the other hand, the generalized excitation shows a negative asymmetry of 8%.
The 25% delta spill is above 16% from May 11, reflecting a highly volatile situation as markets and professional traders are unwilling to reduce price risk.
More importantly, the recent high of 25.6% on May 14 was the highest level ever for this indicator in bitcoin history. Currently, there is a strong bearish sentiment in BTC options markets.
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An explanation of the duality between margin and options
A possible explanation for the different sentiment between BTC margin traders and possible options prices is the fall of the Terra USD (UST) on 10 May. Market makers and arbitrage desks could suffer huge losses when the stablecoin lost its peg, reducing their risk appetite for BTC options.
In addition, the cost of borrowing Tether USD has dropped to 3% per year on Aave and Compound, according to Loanscan.io. This means that traders will benefit from this low-cost leverage strategy, which will increase the margin lending ratio of the USDT / BTC pair.
There is no way to predict what would end bitcoin for the current downturn, so access to cheap finance does not guarantee a positive price move.
The views and opinions expressed herein are those of theauthor and do not necessarily represent those of Cointelegraph. All investments and trades involve risk. You should do your own research before making a decision.