Bitcoin price falls to $20.8,000 as regulatory and macroeconomic pressures increase

Bitcoin (BTC) traders saw continued downward pressure following a 5.5% decline in the BTC price on March 7. Increased odds of further rate hikes from the Federal Reserve and regulatory pressure in cryptocurrencies explain some of the movement.

Financial markets showed signs of stress as the inverted bond curve reached its highest level since the 1980s. Long-term dated yields have stalled at 4%, while two-year government bonds traded above 5% in March.

Since July, longer-term Treasury yields have failed to keep pace with the rising two-year benchmark, resulting in the inverted curve distortion that usually precedes economic downturns. According to Bloomberg, the indicator reached a full percentage point on March 7, the highest level since 1981, when central bank chief Paul Volcker faced double-digit inflation.

This week, BlackRock, the world’s largest asset manager, raised its forecast for US federal funds to 6%. Rick Riede, chief investment officer for global fixed income at BlackRock, believes the Fed will keep interest rates high for “an extended period to slow the economy and bring inflation down to close to 2%”.

Fears of cryptocurrency regulation are growing

According to a Wall Street Journal report, the Biden administration wants to apply the wash sale rule to crypto, which would put an end to a strategy where a trader sells and then immediately buys digital assets for tax purposes.

Furthermore, the Public Company Accounting Oversight Board (PCAOB), an organization that monitors audits of public companies in the United States, has recently issued a warning to investors about proof-of-reserve reports issued by auditing firms.

The organization, supported by the US Securities and Exchange Commission (SEC), said that: “investors should note that PoR engagements are not audits and, accordingly, the related reports do not provide meaningful assurance.”

Let’s look at derivatives calculations to better understand how professional traders are positioned in the current market conditions.

Bitcoin margin markets have returned to normal

Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions.

For example, one can increase exposure by borrowing stablecoins and buying Bitcoin. Borrowers of Bitcoin, on the other hand, can only take short bets against the cryptocurrency.

The chart above shows that OKX traders’ margin lending ratio fell dramatically on March 9, moving away from a situation that previously favored leveraged long positions. Given the general bullishness of crypto traders, the current margin lending rate of 16 is relatively neutral.

On the other hand, a margin lending ratio above 40 is very rare, although it has been the norm since 22 February. It is partly driven by a high borrowing cost for stablecoins of 25% per year. After the recent anomaly, the margin market has reverted to a neutral-to-bullish state.

Options traders price in a low risk of extreme price corrections

Traders should also analyze options markets to understand whether the recent correction has made investors more risk-averse. 25% delta bias is a clear sign when arbitrage tables and market makers are charging too much for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the premium for protective put options is higher than the premium for risky call options.

In short, if traders expect a Bitcoin price drop, the bias calculation will rise above 10% and generalized voltage has a negative bias of 10%.

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Although Bitcoin failed to break the $25,000 resistance on February 21 and subsequently experienced a 14% correction in 16 days, the 25% delta bias remained in the neutral zone over the past month. The current positive bias of 3% indicates a balanced demand for bullish and bearish option instruments.

Derivatives data shows that professional traders are not willing to go bearish, as evidenced by options traders’ neutral risk rating. Furthermore, the margin lending ratio indicates that the market is improving as some demand for bearish plays has emerged, but the structure remains neutral-to-bullish.

Given the enormous downward price pressure from a macroeconomic standpoint, as well as ongoing regulatory pressure in the US, bulls should probably be pleased that Bitcoin derivatives have remained solid.

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This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making a decision.