On February 1 and February 2.After the US Federal Reserve (FED) announced plans to raise interest rates by 25 basis points, the price of Bitcoin (BTC) exceeded even the most ambitious price forecasts.
Although Fed Chairman Jerome Powell has told investors not to expect an interest rate cut in 2023, he made it clear during the press conference that employment data is the main focus right now.
U.S.private sector hiring slowed sharply in January, according to the ADP payroll survey results on February 1.ADP private sector payrolls were 106,000, below the market consensus of 160,000.This data boosted investors’ expectations of future interest rate hikes by the FED.
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 findings are exciting, traders should note that the improvement in crypto market sentiment has been monitored by the risk-attitude seen in traditional markets.
Stocks with negative operating margins posted the biggest gains on Feb.2, including Coinbase ( COIN ) 20%, Cloudflare ( NET ) 15%, Unity Software ( U ) 12%, and DoorDash ( DASH ) 10%.
That alone should be a warning sign that the gains of the past few weeks may not be sustainable.It’s also worth remembering that Bitcoin’s 40-day correlation with the S&P 500 remains above 75%.
Potential regulatory headwinds could play a crucial role in supporting Bitcoin’s rise.Huang Yiping, a member of the Monetary Policy Committee of the People’s Bank of China (PBoC), recently argued that a permanent ban on crypto could lead to many missed opportunities.
Huang, now a professor of economics at Peking University’s National Development School, has criticized Bitcoin for having no intrinsic value, but noted that crypto-related technologies are “very useful” for regulated financial systems.
Let’s take a look at derivatives metrics to see if professional traders have increased leverage positions since Bitcoin’s recent price divergence ended.
Bitcoin margin traders heat up to $22,500 support
Margin markets provide insight into how professional traders are positioned because they allow investors to borrow cryptocurrency to exercise their positions.
For example, one can increase exposure by borrowing stablecoins to buy bitcoins.
On the other hand, borrowers of Bitcoin can short the currency as the price declines.Unlike futures contracts, the balance between margin longs and shorts does not always match.
The chart above shows that OKX traders’ margin leverage increased significantly on January 30th, indicating that professional traders took significant profits after successfully trading Bitcoin after testing the $22,500 support.
More specifically, January 29 marked the indicator’s lowest level in more than eleven weeks at 13.Now at 24, the bulls are clearly getting more comfortable with their current support of $22,500.
Related: The community mocks Charlie Munger for his obsession with China’s Bitcoin ban.
Options traders are blindly biased
Traders should analyze the options markets to understand whether the recent rally has made investors more fearful.A 25% delta skew is an indicator of when arbitrage tables and market makers are overpaying for upside or downside protection.
The indicator compares similar call (buy) and put options and becomes positive when fear is high because the premium for defensive put options is higher than risky call options.
In short, the skew gauge moves above 10% if traders fear a fall in the price of Bitcoin.On the other hand, overall happiness shows a 10% negative sentiment.
The 25% delta skew is relatively stable near negative 5, indicating bearish and reversal possibilities from options traders.On the bright side, even the $22,500 attempt on January 31 wasn’t enough to break the bulls’ spirits.
Coupled with a lack of interest from margin traders to short Bitcoin, the spread markets paint a bleak picture.
While it may take a little longer (perhaps a couple of days) to break above $24,000, there are no signs of distress from Bitcoin’s margin and options markets.However, traditional markets continue to play an important role in setting the trend, so Bitcoin investors should not be overconfident.
The views, ideas and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations.Every investment and business activity involves risk, and readers should do their own research when making a decision..