Bitcoin derivatives suggest that the $26K resistance level will not last long
The price of Bitcoin (BTC) increased by 28% between March 12 and 14, reaching $26,500, the highest level since June 2022. Some may attribute the increase to the Consumer Price Index (CPI)’s 6% year-over-year increase in February , although the figure was in line with expectations.
The inflation gauge reached its lowest level since September 2021, which is a positive development, but it does not validate the Federal Reserve’s attempt to reduce the calculation to 2%. Risk markets, such as equities and cryptocurrencies, were most likely to rise after regional banking stocks rallied from March 13 lows.
At 10:30 a.m. Eastern Time, First Republic Bank ( FRC ) shares were trading 54% higher, followed by Western Alliance Bancorporation ( WAL ) which was up 46% and KeyCorp ( KEY ) which was up 15%. The 30-year average mortgage rate fell to 6.6% from 7.1% on March 7. Reduced mortgage interest rates therefore have the potential to improve the housing market, which partly explains the upswing.
The unexpected drop in mortgage rates could present an opportunity for price-sensitive home buyers and homeowners waiting for a chance to lock in a lower interest rate. According to data from Realtor.com, a buyer of a median-priced home still faced a monthly mortgage payment that was 49% higher than it was a year earlier.
Despite the possibility of a recession in the US due to high interest rates, China’s economic outlook remains positive. Li Qiang spoke to reporters on March 14 for the first time since taking the post overseeing the State Council, China’s top executive body. According to Qiang, non-state-owned enterprises in China will have more room for development.
Let’s look at derivatives calculations to better understand how professional traders are positioned in the current market conditions.
Bitcoin Margin Markets Signaling a Market Shortage
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 and buying Bitcoin. On the other hand, borrowers of Bitcoin can only take short bets against the cryptocurrency.
Since March 13, OKX traders’ margin-lending ratio has been above 35, indicating a significant imbalance in favor of Bitcoin longs. Readings above 40 are unusual and driven by a high borrowing cost for stablecoins of 25% per year.
One should refer to the BTC options markets to confirm if professional traders are indeed expecting further price increases.
Options traders are far from thrilled
Traders should also analyze options markets to understand whether the recent correction has caused investors to become less risk averse. 25% delta bias is a clear sign when arbitrage tables and market makers are charging too much 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 premium for protective put options is higher than the premium for risky call options.
In short, if traders expect a Bitcoin price drop, the bias calculation will rise above 8%, and generalized voltage has a negative bias of 8%.
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On March 13, when Bitcoin broke above the $22,000 resistance level, BTC options’ main risk gauge left the fear zone that had been in place for three days. As options traders assigned the same risk rating to bullish and bearish strategies, the 25% delta bias entered a neutral zone.
However, it would be wrong to conclude that the negative 5% bias seen briefly on March 14 indicates excessive optimism or bullishness. Analysts and pundits often jump on the bandwagon and celebrate rapid reversals, but anything between -8% and +8% remains in the neutral zone.
According to the pricing of options contracts, derivatives data indicate that professional traders maintained their long positions using margin markets and exited their bearish stance on March 13. Given the improvement in macroeconomic market conditions, Bitcoin bulls are well positioned to drive the price above $26,000.
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