While professional traders utilized leverage to drive the pump, driving the price of bitcoin to a year-to-date high close to $19,000, derivatives data suggests reasons why the price of bitcoin may now retest $17,300.
The price of Bitcoin BTC tickers down$23,767 has increased 15% over the last 13 days, and compared to bulls, traders’ bearish bets on BTC futures have seen more than $530 million in liquidation.
Bitcoin’s price rose to its highest level since the FTX exchange collapsed on November 8 after gaining to $19,000 on January 12. The Consumer Price Index (CPI) estimate for December in the United States, which was expected to be 6.5% year-over-year, met consensus and demonstrated that inflationary pressure probably peaked at 9% in June, which was a major factor in the movement.
FTX attorney Andy Dietderich also stated on January 11 that $5 billion in cash and liquid cryptocurrencies had been retrieved, stoking optimism for a potential partial recovery of consumer monies. On January 11, Dietderich said in a hearing before a U.S. bankruptcy court in Delaware that the business intended to sell $4.6 billion in non-strategic
To determine whether professional traders are enthused about Bitcoin’s climb to $19,000, let’s look into derivatives measures.
Margin use increased as Bitcoin price rallied to $18,300 and above
Margin is advantageous to certain investors since it enables them to borrow bitcoin to leverage their positions. Margin markets reveal how professional traders are positioned.
For instance, borrowing stablecoins to purchase Bitcoin might raise vulnerability. On the other hand, Borrowers of Bitcoin can only short the cryptocurrency since they are betting on it falling in value. The balance between margin longs and shorts isn’t necessarily equal, unlike with futures contracts.
According to the following figure, OKX traders’ margin lending ratio significantly rose on January 11, indicating that they added leveraged long positions as Bitcoin climbed toward $18,300.
However, the total margin reversal, which occurred on January 12 and sent Bitcoin’s price to a low of $17,920, was more significant. This means that market makers and whales decreased their bullish bets utilizing margin markets.
At 21, the indicator heavily favors borrowing with stablecoins, showing that bears are hesitant to start margin short positions on Bitcoin.
New Year, new monetary policy?
Economic indicators point to a weakening U.S. economic activity as inflation decreases. Due to this, traders are hopeful that the Federal Reserve would change its rate-hiking policy, if not completely reverse it.
Fresh U.S. inflation statistics released this week indicated a moderate decline, with the consumer price index falling by 0.1% monthly in December, per Dow Jones forecasts.
As investors ignore the FTX crash, “Bitcoin seems to have recoupled with macro data,” James Butterfill, head of research at digital asset management company CoinShares, wrote in an email to CNBC.
The poor services PMI and the downward trend in employment and wage data are the two key macroeconomic indicators that investors are paying attention to. Improved confidence has resulted from this, along with a decreased trend in inflation, and it does so just as Bitcoin values are approaching all-time lows. This rise has been driven by the possibility of looser monetary policy as a result of worse macroeconomic data and cheap valuations.
Seven times in 2022, the Fed increased borrowing rates, sending risky assets like equities — and tech companies in particular — into a precipitous fall. The bank’s benchmark funds rate rose to between 4.25% and 4.50% in December, marking its highest level since 2007.
Due to the growing perception among investors that bitcoin is a dangerous asset, it has become entangled in the market drama around loan rates.
Bitcoin’s supporters have previously praised its potential as a “hedge” to buy during periods of excessive inflation. Bitcoin, however, fell by almost 60% in 2022 as the U.S. and other major countries struggled with rising rates and living expenses, failing to meet their goal
This is “brewing a hope amongst market players that the Fed would further slow down on the pace of rate rises,” wrote Yuya Hasegawa, a cryptocurrency market analyst at the Japanese cryptocurrency exchange Bitbank, in a note on January 13.
For the time being, the Fed is expected to maintain high-interest rates. Some market participants, however, are optimistic that central banks would start slowing down the rate increases or perhaps cutting rates. According to some experts, the Fed may decrease interest rates as soon as this year.
This is because central bankers are also considering the possibility of a recession.
In a study issued by the Davos organizer on Monday, the World Economic Forum found that around two-thirds of chief economists questioned think a global recession is likely to occur in 2023.
‘Whales’ buying BTC
According to Kaiko, larger buyers of virtual currency known as “whales” may be driving the most recent bitcoin boom.
The crypto analytics company noted in a series of tweets on Monday that deal sizes on the cryptocurrency exchange Binance had increased from an average of $700 on January 8 to $1,100 today, demonstrating whales’ rekindled confidence in the market.
Investors that have amassed substantial bitcoin holdings are known as whales. Some are people, such as Silicon Valley investor Tim Draper and MicroStrategy CEO Michael Saylor. Others include organizations that serve as intermediaries in transactions between buyers and sellers, such as market makers.
Digital currency skeptics claim that because of this, the market is vulnerable to manipulation by a small group of investors that have a lot of tokens. According to fintech company River Financial, the top 97 bitcoin wallet addresses control 14.15% of the entire supply.
According to Carol Alexander, a lecturer at the University of Sussex, bitcoin might see a “controlled bull market” in 2023, with prices rising beyond $30,000 in the first quarter and to $50,000 in the second. She made her prediction to CNBC in December. Her justification was that whales would intervene to support the market when trade volumes dried up and market anxiety was at an all-time high.
Bitcoin mining difficulty rising
There are also other elements at work.
The price decline has forced away several bitcoin miners. The decline in price and rising energy prices have put pressure on bitcoin miners, who utilize powerful processors to validate transactions and create new coins.
According to Ayyar, this is traditionally a positive indication for bitcoin.
These individuals are among the market’s top sellers because of the enormous amounts of digital money they amass. The majority of the remaining selling pressure on bitcoin is reduced as a result of miners selling their holdings to settle obligations.
However, more recently, the “difficulty” of the bitcoin network has risen, requiring more computer power to release fresh tokens into circulation.
According to data from BTC.com, mining difficulty hit a new high of 37.6 trillion on Sunday. This means that, on average, it would take 37.6 trillion hashes to identify a legitimate bitcoin block and add it to the blockchain.
Futures traders ignored the Bitcoin price pump
Externalities that may have just affected the margin markets are not included in the long-to-short statistic. Furthermore, it collects information from exchange clients’ holdings on the spot, perpetual, and quarterly futures contracts, providing deeper insight into how professional traders are positioned.
Since there are sometimes methodological differences between different exchanges, readers should focus on trends rather than absolute numbers.
The long-to-short indicator shows that professional traders have maintained their leverage long positions despite Bitcoin breaking over the $18,000 barrier.
For instance, from January 9 through January 12, the ratio for Binance traders remained steady at 1.08. Top Huobi traders cut down on their leveraged long positions as the indicator went from 1.09 to the current 0.91. Last but not least, at crypto exchange OKX, the long-to-short ratio favoring longs marginally rose, rising from 0.95 on January 9 to the present 0.97.
Despite the price surge, futures traders lacked the confidence to add leveraged bullish positions.
Bitcoin price could retest at $17,300
The margin data reveals that the scenario was only brief even if it demonstrates that substantial leverage was employed to push Bitcoin beyond $18,000. Most likely, following the incident, those expert traders increased their margin deposits and decreased their leverage. The statistic appears to be healthy since it shows that margin markets are not overbought.
Concerning the top trader’s long-to-short ratio, there is potential for more purchasing power even though there is no market for leveraged longs utilizing futures contracts.
In terms of derivatives, even if Bitcoin retests $17,300, the bulls shouldn’t be alarmed because the signs suggest that there isn’t much demand from short sellers and that purchasers aren’t using excessive leverage.