Bitcoin derivatives data reflects traders’ mixed sentiments below $17,000

by · November 14, 2022

Bitcoin (BTC) lost 25.4% in 48 hours, hitting a low of $15,590 on November 9 as investors rushed to exit positions after the second largest cryptocurrency exchange, FTX, halted withdrawals. More importantly, levels below $17,000 were last seen almost two years earlier, and fears of contagion became apparent.

The move liquidated $285 million in leveraged long (bull) positions, leading some traders to predict a potential downside of $13,800.

As described by independent market analyst jaydee_757, the bearish trend continues to exert its pressure, with $17,200 as a resistance level. However, such an analysis does not guarantee that the ultimate bottom of $13,800 will be hit.

Curiously, the price action coincided with better conditions for global equity markets on October 4, as the S&P 500 rose 6.4% between November 10 and November 11 and the tech-heavy Nasdaq Composite gained 9.5%. Therefore, at least from a technical perspective, Bitcoin was completely decoupled from traditional finance.

Further uncertainty on Bitcoin has been caused by Grayscale Bitcoin Trust (GBTC) trading on over-the-counter stock markets after the fund’s $11.4 billion discount on its assets passed 40%.

As noted by Vance Spencer, the implied BTC price according to the funds’ trade is below $9,000, and pressure should continue if some owners use their shares as collateral for loans.

Still, the negative sentiment that caused Bitcoin to break below $20,000 does not mean that professional investors are bearish on today’s price levels.

Margin traders did not close their longs

Margin and options market monitoring provides excellent insight into how professional traders are positioned, allowing investors to borrow cryptocurrency to leverage their trading position.

For example, one can increase exposure by borrowing stablecoins to buy an additional Bitcoin position. On the other hand, Bitcoin borrowers can only short the cryptocurrency when they are betting that the price will go down. Unlike futures contracts, the balance between margin longs and shorts is not always matched.

OKX USDT/BTC margin lending ratio. Source: OKX

The chart above shows that OKX traders’ margin-lending ratios have increased from November 8 to November 10, signaling that traders did not close their leveraged loans despite the 25.4% price correction.

Furthermore, the metric continues to favor stablecoin loans by a wide margin, indicating that traders have held bullish positions.

Options markets turned bearish

Traders should scan options markets to understand if Bitcoin can regain the $18,500 support. 25% delta bias is a clear 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 will turn positive when fear is prevalent because the protective put option premium is higher than risky call options.

The bias indicator will move above 10% if traders fear a Bitcoin price crash. On the other hand, generalized voltage reflects a negative bias of 10%.

Bitcoin 60 Day Options 25% Delta Bias: Source: Laevitas

As shown above, the 25% delta bias had been below 10% since October 26, but it quickly moved above this threshold on November 8, suggesting that options traders were pricing in a higher risk of unexpected price dumps.

Whenever this metric is above 10%, it signals that traders are fearful and reflects a lack of interest in offering downside protection.

Related: Crypto.com’s CRO is in trouble, but a 50% price rebound is in play

FUD termination does not happen overnight

Despite the bearish Bitcoin options indicator, the OKX margin lending rate showed that whales and market makers are maintaining bullish plays. The fear of contagion may explain the mixed sentiment as investors struggle to interpret recent moves from the Crypto.com exchange, including a “random” transfer of 320,000 Ether (ETH) to Gate.io.

Analyst Holger Zschaepitz’s post describes investors’ current sentiment as unwilling to take risks on centralized exchanges that offer similar products and services from the now bankrupt FTX.

Consequently, derivatives reflect low confidence in regaining the $18,500 support until more data shows that the cryptocurrency ecosystem’s liquidity has been restored.