Derivatives data shows increased demand for long spreads, contradicting traders’ perception that bitcoin is more disadvantageous.
it lost 25.4% in 48 hours, down to $15,590 on November 9, as investors exited their positions after the second largest cryptocurrency exchange FTX stopped retreating. More importantly, levels below $17,000 were last seen almost two years ago, and fears of contagion became apparent.
The move liquidated $285 million in long (bullish) leveraged positions, leading some traders to predict a potential downside of $13,800.
As described by independent market analyst Jaydee_757, the downtrend continues to exert its pressure, with $17,200 as a resistance level. However, such analysis does not guarantee that the final fund of $13,800 will be reached.
Interestingly, the price action coincided with improved conditions for global stock markets on October 4, as the S&P 500 index gained 6.4% between November 10-11 and the tech-heavy Nasdaq Composite retreated 9.5%. So, at least from a technical perspective, Bitcoin has completely decoupled from traditional finance.
Additional uncertainty about bitcoin was sparked by shares of Grayscale Bitcoin Trust trading on over-the-counter stock markets after the fund’s $11.4 billion discount on its assets exceeded 40%.
As Vance Spencer pointed out, the implied price of BTC according to fund trading is less than $9,000, and the pressure should continue if some holders use their shares as collateral for loans.
However, the negative sentiment that saw Bitcoin drop below $20,000 does not mean that professional investors are bearish on current price levels.
Margin traders did not close their long positions
Monitoring the options and margin markets provides excellent insight into how professional traders position themselves, allowing investors to borrow cryptocurrencies to take advantage of their trading position.
For example, you can increase your exposure by borrowing stablecoins to buy an additional bitcoin position. On the other hand, Bitcoin loans can only short the cryptocurrency as it falls on its price. Unlike futures contracts, the balance between long and short spreads does not always coincide.
OKX USDT/BTC Margin Loan Index. Source: OKX
The chart above shows that the OKX Traders Margin Lending Index increased from Nov 8-10, indicating that traders did not close their leveraged longs despite the 25.4% price correction.
In addition, the metric continued to favor stablecoin loans by a large margin, indicating that traders held bullish positions.
Options markets have turned bearish
Traders need to scan the options markets to understand if Bitcoin will return to the $18,500 support. The 25% delta assumption is a bad sign when arbitrage desks and market makers overcharge for upside or downside protection.
The indicator compares similar call and put options and will turn positive when fear prevails, as the protection premium of put options is higher than risky call options.
The bias indicator will move above 10% when traders fear a Bitcoin price drop. On the other hand, widespread enthusiasm reflects a negative bias of 10%.
Bitcoin 60-Day Options 25% Delta Bias: Source: Laevitas
As shown above, the 25% delta bias has been below 10% since October 26, but quickly moved above that threshold on November 8, suggesting that option traders are pricing in a higher risk of unexpected price dumps.
Whenever this metric exceeds 10%, it indicates that traders are anxious and reflects a lack of interest in providing downside protection.
Related: Crypto.com CRO is in trouble, but a 50% price rebound is on the line
FUD dismissal does not happen overnight
Despite the bearish Bitcoin options indicator, the OKX margin loan rate showed whales and market traders holding bullish bets. Contagion fears could explain the mixed sentiment as investors struggle to interpret the recent moves of the Crypto.com exchange, including an “accidental” transfer of 320,000 ether.