Bitcoin Pro Traders Warm Up $24K Level, Suggesting Current BTC Rally Has Legs

On February 1st and February 2nd, Bitcoin’s (BTC) price outperformed even the most bullish price forecasts after the US Federal Reserve announced plans to raise interest rates by 25 basis points.

Although Fed Chair Jerome Powell told investors not to wait for rate cuts in 2023, he made it clear during his press conference that employment data is currently the main focus.

The results of the ADP payroll survey revealed on February 1 that US private sector hiring slowed significantly in January. ADP’s measure of private sector payrolls was 106,000, well below the market consensus of 160,000. This data drove investors’ expectations of future rate hikes from the Fed going forward.

After testing the $22,500 support on February 1, Bitcoin gained 6.5% in five hours and has since flirted with the $24,000 level. While the recent gains are exciting, traders should note that the improvement in crypto market sentiment followed the risk-on attitude seen in traditional markets.

Stocks with negative operating margins posted significant gains on February 2, including Coinbase ( COIN ) 20%, Cloudflare ( NET ) 15%, Unity Software ( U ) 12%, and DoorDash ( DASH ) 10%. This factor alone should be a warning sign that the gains of recent weeks may not be sustainable. It’s also important to remember that Bitcoin’s 40-day correlation to the S&P 500 remains above 75%.

Potential regulatory headwinds could also have played an important role in supporting Bitcoin’s upside. Huang Yiping, a former member of the Monetary Policy Committee of the People’s Bank of China, recently argued that a permanent ban on crypto could result in many lost opportunities.

Huang, now an economics professor at Peking University’s National School of Development, criticized Bitcoin for lacking intrinsic value, but noted that crypto-related technologies are “very valuable” to regulated financial systems.

Let’s look at derivatives calculations to understand if professional traders added leverage positions after Bitcoin’s recent price breakout.

Bitcoin margin traders are warming up to the $22,500 support

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 Bitcoin. 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.

The chart above shows that OKX traders’ margin-lending ratio increased drastically on January 30, signaling that professional traders increased leverage long after Bitcoin successfully bounced back after testing the $22,500 support.

More importantly, January 29th marked the indicator’s lowest level in more than eleven weeks at 13, favoring stablecoin borrowing with a wide margin – indicating that shorts are not confident in building bearish leveraged positions. At 24 at the time of writing, it is clear that bulls are getting more comfortable with the current support at $22,500.

Related: Society mocks Charlie Munger for his obsession with China’s Bitcoin ban

Options traders flirt with an optimistic bias

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%.

The 25% delta bias has been relatively calm near negative 5, indicating similar downside and upside odds from options traders. On the bright side, even the $22,500 retest on January 31 wasn’t enough to break the bull’s spirit. Combined with the lack of demand from margin traders willing to short Bitcoin, the derivatives markets paint a bullish picture.

Although it will take a bit longer (perhaps a couple of days) to break above $24,000, there are no signs of stress from the Bitcoin margin and options markets. However, traditional markets continue to play an important role in setting the trend, so Bitcoin investors should not get overconfident.

The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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.