What does a drop in the lending margin mean for the BTC price?
Bitcoin (BTC) price rose over 10% between April 9 and April 14, marking the highest daily close in more than ten months. While some analysts may argue that the move justifies a degree of decoupling from traditional markets, both the S&P 500 and gold are near their highest levels in more than six months.
Bitcoin price breaks $30,000 despite macro headwinds
Bitcoin’s gains and rally above $30,000 also occurred as the Dollar Strength Index (DYX), which measures the US currency against a basket of foreign currencies, hit a 12-month low.
The indicator fell to 100.8 on April 14 from 104.7 a month earlier as investors priced in higher odds of further liquidity injections from the Federal Reserve.
Related: Bitcoin price teases $30K break ahead of US CPI, FOMC minutes
The latest Federal Reserve’s monetary policy meeting minutes, released on April 12, explicitly pointed to the expectation of a “mild recession” later in 2023 due to the banking crisis. Even if inflation is no longer a major concern, monetary authorities have little room to raise interest rates further without escalating an economic crisis.
Even if inflation is no longer a major concern, monetary authorities have little room to raise interest rates further without escalating an economic crisis.
Strong macroeconomic data explains investors’ bullishness
While the global economy may deteriorate in the coming months, recent macroeconomic numbers have been largely positive. For example, the European Union’s statistics office reported that industrial production in the 20 member states rose 1.5% month-on-month in February, while economists polled by Reuters expected a 1.0% increase.
Furthermore, China’s latest macroeconomic data showed an encouraging trend, with exports rising 14.8% year-on-year in March, beating a five-month decline and surprising economists who had expected a 7% decline. As a result, China’s trade balance for March was $89.2 billion, well above the market consensus of $39.2 billion.
The contrast between the current economic momentum and the coming recession triggered by higher funding costs and reduced risk appetite among lenders has Bitcoin investors questioning the sustainability of the $30,000 support.
Let’s look at the Bitcoin derivatives metrics to better understand how professional traders are positioned in the current market environment.
BTC derivatives show no excessive influence from longs
Margin markets provide insight into how professional traders are positioned because they allow investors to borrow cryptocurrency to leverage their positions.
OKX, for example, provides a margin lending indicator based on the stablecoin/BTC ratio. Traders can increase their exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only bet on the decline of a cryptocurrency’s price.
The chart above shows that OKX traders’ margin lending ratios fell between April 9th and April 11th. That is extremely healthy as it shows that no leverage has been used to support Bitcoin’s price gains, at least not using margin markets. Given the general bullishness of crypto traders, the current lending ratio of 15 is relatively neutral.
The long-to-short calculation excludes externalities that may have solely affected the margin markets. In addition, it collects data from exchange clients’ positions on spot, perpetual and quarterly futures contracts, thereby providing better information on how professional traders are positioned.
There are occasional methodological discrepancies between different exchanges, so readers should monitor changes rather than absolute numbers.
Interestingly, despite Bitcoin breaching $30,000 for the first time in 10 months, professional traders have kept their long positions unchanged, according to the long-to-short indicator.
For example, the ratio for Huobi traders was stable near 0.98 from April 9th to April 14th. Meanwhile, on crypto exchange Binance, the long-to-short increased slightly, favoring longs, going from 1.12 on April 9 to 1.14 today. Finally, on the OKX crypto exchange, the long-to-short ratio fell slightly, from 1.00 on April 9 to today’s 0.91.
Related: Tesla selling Bitcoin last year turned out to be a $500 million mistake
Furthermore, Bitcoin futures traders were not confident enough to add leveraged bullish positions. Even if the Bitcoin price retests $29,000 on derivatives, bulls should be unconcerned because there has been little demand from short sellers and no excessive leverage from buyers.
In other words, Bitcoin’s market structure is bullish, where the BTC price could easily rise another 10% to $33,000 given sellers who are currently afraid to short it.
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.
