Bitcoin derivatives favor further BTC price rally toward $30K
Despite regulatory pressure and worsening macroeconomic conditions, Bitcoin demonstrated bullishness, holding near $28,000 for the past week. Furthermore, professional traders have maintained leveraged long positions on margin and in futures markets, indicating strength.
On the regulatory front, on April 4, the Texas Senate Committee on Business and Commerce agreed to move forward and remove incentives for miners operating within the state’s regulatory environment. If passed, Senate Bill 1751 would cap compensation for load reductions on Texas’ power grid during emergencies.
Risk of recession grows against rate hikes
The risk of a recession in the United States grew after applications for unemployment benefits in the week ending March 25 were revised to 246,000, up 48,000 from the initial report.
Furthermore, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), stated on April 6 that the economies of the U.S. and Europe should continue to struggle as higher interest rates weigh on demand.
Regarding the banking crisis, Georgieva advised central banks to keep raising interest rates, adding, “Concerns remain about vulnerabilities that may be hidden, not just at banks but also non-banks — now is not the time for complacency.“
On the other hand, on April 6, St. Louis Federal Reserve president James Bullard downplayed concerns about the impact of financial stress on the economy. Bullard stated that the Fed’s reaction to the banking sector’s weakness was “swift and appropriate,” and that “monetary policy can continue to put downward pressure on inflation.“
Let’s look at derivatives’ metrics to better understand how professional traders are positioned in the current market conditions.
BTC price derivatives reflect traders’ neutral sentiment
Margin markets provide insight into how professional traders are positioned because they allow investors to borrow cryptocurrency to leverage their positions.
For example, one can increase exposure by borrowing stablecoins and buying Bitcoin. On the other hand, borrowers of Bitcoin can only take short bets against BTC/USD.
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The chart above shows that OKX traders’ margin lending ratio has remained near 28x in favor of BTC longs over the last week. If those whales and market makers had perceived increased risks of a price correction, they would have borrowed Bitcoin for shorting, causing the indicator to fall below 20x.
The top traders’ long-to-short net ratio excludes externalities that might have solely impacted the margin markets. Analysts can better understand whether professional traders are leaning bullish or bearish by aggregating the positions on the spot, perpetual and quarterly futures contracts.
Because there are some methodological differences between different exchanges, viewers should focus on changes rather than absolute figures.
Between April 1 and April 7, the top traders’ long-to-short ratio at Binance slightly declined from 1.17 to 1.09. Meanwhile, at the Huobi exchange, the top traders’ long-to-short ratio has stood near 1.0 since March 18. More precisely, the ratio slid from 1.00 on April 1 to 0.95 on April 7, thus relatively balanced between longs and shorts.
Lastly, OKX whales presented a very different pattern as the indicator declined from 1.25 on April 3 to a 0.69 low on April 5, heavily favoring net shorts. Those traders reverted the trend, aggressively buying Bitcoin using leverage for the past two days as the long-to-short ratio returned to 0.97.
Absence of Bitcoin shorts is a bullish indicator
In essence, both the Bitcoin margin and futures markets are currently neutral, which should be interpreted positively given that the Bitcoin price rose 41.5% between March 10 and March 20, holding the $28,000 level.
Given the enormous regulatory uncertainty caused by the SEC’s Wells notice against Coinbase on March 22, the absence of shorts using margin and futures markets currently favors further price appreciation.
Unless the economic crisis unfolds faster than expected, inflation will remain a top concern for investors, and Bitcoin inflows should be enough to keep $28,000 as a resistance level.
The views, thoughts and opinions expressed here are the authors’ alone