This week, stock markets started to turn a little green and Bitcoin (BTC) is decoupling from traditional markets, but not in a good way. The cryptocurrency is down 3% while the Nasdaq Composite Tech stock index is up 3.1%.
Data from the US Department of Commerce on May 27 shows the personal savings rate fell to 4.4% in April, the lowest since 2008, and crypto traders are concerned that deteriorating macroeconomic conditions are affecting global markets markets could increase investors’ aversion to risky assets.
For example, the Invesco QQQ Trust, a $160 billion exchange-traded fund of U.S. tech companies, is down 23% so far this year. Meanwhile, iShares MSCI China ETF, a $6.1 billion Chinese stock tracker, is down 20% over the same period.
To get a better idea of how cryptocurrency traders are positioned, take a look at Bitcoin derivatives metrics.
Margin traders turn bullish
Margin trading allows investors to borrow cryptocurrencies and use their trading position to potentially increase their profits. For example, cryptocurrencies can be bought by borrowing Tether (USDT) to increase engagement.
Bitcoin borrowers can only short the cryptocurrency if they bet its price will fall, and unlike futures contracts, the balance between longs and shorts on margin isn’t always even.
The chart above shows that traders have been borrowing more Tether lately as the ratio jumped from 13 on May 25 to 20 today. The higher the indicator, the more confidence professional traders have in Bitcoin’s price.
Notably, the margin lending ratio of 29 hit on May 18 was the highest level in over six months, reflecting bullish sentiment. On the other hand, a USDT/BTC margin borrowing ratio below 5 is usually a bearish sign.
Options markets entered “extreme fear”.
To rule out externalities specific to margin markets, traders should also look at the price of bitcoin options. The 25% delta slope compares similar call and put options. The metric turns positive when fear prevails because the premium for protective put options is higher than for similarly risky call options.
The opposite occurs when greed prevails, causing the 25% Delta Bias Indicator to move into negative territory. In short, when traders fear a bitcoin price decline, the bias indicator will hover above +8%. On the other hand, the general hype reflects a -8% slope.
The 25% Tilt Indicator is above +16% since May 11th, indicating an extremely imbalanced situation as markets and professional traders are unwilling to take price risks on the downside.
More importantly, the recent 25.6% surge on May 14 was the largest reading of the 25% slope in Bitcoin’s history. There is currently strong bearish sentiment in the BTC options markets.
Explanation of the duality between margin and options
A possible explanation for the divergence between BTC margin traders and option prices may have been the collapse of Terra USD (UST) on May 10th. Market makers and arbitrage desks could have suffered huge losses as the stablecoin lost its peg to the dollar, reducing their risk appetite on BTC options.
Additionally, according to Loanscan.io, Tether’s borrowing costs have dropped to 3% per year at Aave and Compound. This means that traders will use this low-cost leverage strategy and thereby increase the USDT/BTC margin borrowing ratio.
There is no way to predict what would cause Bitcoin to end the current downtrend, so access to cheap financing does not guarantee positive price action.
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