Bitcoin price derivatives look a little overheated, but data suggests the bears are outnumbered

Bitcoin (BTC) price surged over 12% on February 15, marking the highest daily close in more than six months. Curiously, the move occurred as gold hit a 40-day low of $1,826, indicating a potential change in investors’ risk assessment of cryptocurrencies.

A stronger-than-expected US inflation report on February 14th presented 5.6% year-over-year growth, followed by data showing robust consumer demand, prompted traders to reassess Bitcoin’s scarcity value. U.S. retail sales rose 3% in January compared to the previous month – the highest increase in nearly two years.

On-chain data indicates that the recent gains can be traced back to a mysterious institutional investor who started buying on February 10. According to Lookonchain’s data, nearly $1.6 billion in funds flowed into the crypto market between February 10 and 15. The analysis showed that three notable USD Coin (USD) wallets sent out funds to various exchanges around the same time.

More importantly, news emerged that the Binance exchange is preparing to face penalties and settle any outstanding regulatory and law enforcement investigations in the US, according to a February 15 Wall Street Journal report. The exchange’s chief strategy officer, Patrick Hillmann, added that Binance was “very confident and felt very good about where these discussions are going.”

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

Bitcoin margined longs entered “FOMO” territory

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 to buy (long) Bitcoin. On the other hand, Bitcoin borrowers can only bet against (short) the cryptocurrency. Unlike futures contracts, the balance between margin longs and shorts is not always matched.

The chart above shows that OKX traders’ margin-lending ratios increased between January 13 and January 15, signaling that professional traders added long positions with leverage as the Bitcoin price broke above the $23,500 resistance.

One could argue that the demand to lend stablecoins for bullish positioning is excessive as a stablecoin/BTC margin lending ratio above 30 is unusual. However, traders tend to put in more security after a few days or weeks, causing the indicator to move out of the FOMO level.

Options traders remain skeptical of a sustained rally

Traders should also analyze options markets to understand whether the recent rally has made investors more risk averse. 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.

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

Related: $24K Bitcoin — Is It Time to Buy BTC and Altcoins? Watch Market Talks live

Note that the 25% delta bias has been neutral over the past two weeks, signaling equal pricing for bullish and bearish strategies. This reading is highly unusual considering Bitcoin rallied 16.2% from January 13th to January 16th, and typically one would expect excessive bullishness that causes the bias to move below minus 10.

One thing is certain, the lack of bearish sentiment is present in futures and options markets. Still, there is some worrying data about excessive margin demand for gearing purchases, although it is too early to call it worrisome.

The longer Bitcoin stays above $24,000, the more comfortable the professional traders become with the current rally. Also, bears using futures markets had $235 million liquidated between January 15 and January 16, resulting in a waning appetite for bearish bets. Therefore, derivatives markets continue to favor bullish momentum.