Data shows that professional Bitcoin traders want to feel positive, but the rally to $23K was not enough

Bitcoin (BTC) price had a mixed reaction on January 25 after the US reported a 2.9% gross domestic product growth in the fourth quarter, slightly better than expected. Nevertheless, the sum of all goods and services commercialized between October and December grew by less than 3.2% from the previous quarter.

Another data set that limited investor confidence was the likelihood that the US Federal Reserve would not reverse its contractionary measures anytime soon after US durable goods rose 5.6% in December. The indicator came in much higher than expected, so it could potentially mean that interest rates will be increased a little longer than expected.

Oil prices also remain a focus for investors, with West Texas Intermediate (WTI) nearing its highest level since mid-September, currently trading at $81.50. The underlying cause is the escalation of the Russia-Ukraine conflict after the US and Germany decided on 25 December to send tanks to Ukraine.

The U.S. dollar index ( DXY ), a measure of the greenback’s strength against a basket of top foreign currencies, held 102, near an eight-month low. This signals low confidence in the US central bank’s ability to curb inflation without causing a significant recession.

Regulatory uncertainty may also have been crucial in limiting Bitcoin’s upside. On January 26, De Nederlandsche Bank, the Dutch central bank, fined cryptocurrency exchange Coinbase $3.6 million for failing to comply with local regulations for financial service providers.

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

Bitcoin margin longs increase slightly

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 slightly after January 20, signaling that professional traders increased leverage long after Bitcoin broke above the $21,500 resistance.

One could argue that the demand to borrow stablecoins for bullish positioning is far less than the levels earlier in January. However, a stablecoin/BTC margin lending ratio above 30 is unusual and usually overly optimistic.

More importantly, the current metric of 17 favors stablecoin borrowing by a wide margin, indicating that shorts are not confident in building bearish leveraged positions.

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 flirted with the bullish bias on January 21 when the indicator reached the threshold at minus 10. The move coincides with the 11.5% BTC price increase and the subsequent rejection to $23,375. From then on, option traders increased their risk aversion for unexpected price dump.

Related: Here’s Why Bitcoin Price May Correct After US Government Fixes Debt Limit

Currently, close to zero, the delta bias signals that investors are pricing similar risks to the downside and upside. So, on the one hand, the lack of demand from margin traders willing to short Bitcoin seems promising, but at the same time, option traders were not confident enough to be optimistic.

The longer Bitcoin stays above $22,500, the riskier it becomes for those who are betting on a BTC price drop (shorts). However, traditional markets continue to play an important role in setting the trend, so the odds of another price pump before the Fed’s decision on February 1 are slim.