Stock markets started to show some green this week, and Bitcoin (BTC), is starting to decouple from traditional markets. But not in a positive way. The cryptocurrency is down 3.1%, while the Nasdaq Composite tech-heavy stock index is up 3.1%.
The May 27 data from US Commerce Department shows that personal savings fell to 4.4% in April, the lowest level since 2008. Crypto traders worry that investors might be more hesitant to invest in risky assets as a result of worsening macroeconomic conditions.
Invesco QQQ trust, a $160 million tech-company-based U.S. exchange traded fund, is down 23% so far in 2018. The iShares MSCI China ETF has fallen 20% since 2022, a $6.1 million tracker of Chinese shares.
For a better understanding of the position of crypto traders, traders can analyze Bitcoin derivatives metrics.
Margin traders are more bullish
Margin trading allows investors the opportunity to borrow cryptocurrency to increase their trading positions and potentially increase their returns. To increase exposure, you can borrow Tether (USDT), to buy cryptocurrency.
Borrowers of Bitcoin can only short it if the price falls. And unlike futures contracts that are matched, the balance between margin shorts and longs isn’t always equal.
USDT/BTC margin lending ratio at OKX exchange. Source: OKX
The chart above shows that traders have borrowed more USD Tether lately, as the ratio has increased from 13 to 20 on May 25, to the current 20, The more positive the indicator is, the more professional traders feel about Bitcoin’s price.
Notable is the fact that the May 18 margin lending ratio of 29 was the highest in over six months. This reflected bullish sentiment. A USDT/BTC margin borrowing ratio lower than 5 is usually a sign of bearish sentiment.
Options markets have entered “extreme fear”
Trader should also examine the pricing of Bitcoin options to exclude any externalities that may be present in margin markets. The 25% delta skew is a comparison of similar call (buy) or put (sell) options. This metric will be positive if fear is present, as the protective put options premium for similar risk options is higher than other options.
When greed is rampant, the 25% delta-skew indicator will shift to the negative zone. The skew indicator will rise above 8% if traders fear a Bitcoin crash. Generalized excitement, on the other hand, reflects a negative 8 percent skew.
Bitcoin 30-day options 25% delta skew at Deribit exchange. Source: Laevitas.ch
Since May 11, the 25% skew indicator has been higher than 16%, indicating an extreme unbalanced market. Professional traders and markets are not willing to take down pricing risks.
Importantly, the 25.6% Bitcoin peak on May 14 marked the highest ever 25% Bitcoin skew. BTC options markets are currently experiencing a strong sense bearishness.
Related: Falling Bitcoin price doesn’t affect El Salvador’s strategy
The duality of options and margin: Explaining it
The Terra USD (UST), collapse on May 10th could be a reason for the divergent attitude between BTC margin traders, option pricing, and market makers. The Terra USD (UST) collapse on May 10th could have caused market makers and arbitrage desks to take large losses, decreasing their appetite for BTC options.
According to Loanscan.io, the cost to borrow USD Tether has fallen to 3% per annum on Aave and Compound. This means that traders will benefit from this low-cost leverage strategy and increase the USDT/BTC margin lending rate.
It is impossible to predict the future, so it is not possible to predict whether Bitcoin will end its bearish trend. Access to low-interest financing is not a guarantee of a positive price movement.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.
Eileen Wilson –Technology and Energy
My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.