Bitcoin derivatives data reflects mixed sentiment from traders below $17,000


Bitcoin (BTC) lost 25.4% in 48 hours to $15,590 on Nov. 9, as investors rushed to exit their positions after the second-largest cryptocurrency exchange, FTX, stopped withdrawing money. More importantly, levels below $17,000 were last seen nearly two years ago, and the fear of contagion was evident.

The move wiped out $285 million worth of long (bull) leverage positions and led some traders to predict a potential downside of $13,800.

As described by independent market analyst jaydee_757, the bearish trend continues to exert pressure with $17,200 as a resistance level. Again, such an analysis does not guarantee that the final bottom of $13,800 will be hit.

Interestingly, the price action coincided with improving conditions for global equity markets on October 4, as the S&P 500 rose 6.4% between November 10 and November 11, and the tech-heavy Nasdaq Composite rose 9.5% . So, at least technically, Bitcoin is completely separated from traditional finance.

Grayscale Bitcoin Trust (GBTC) trading on over-the-counter (OTC) stock markets has sparked further uncertainty about Bitcoin after the $11.4 billion fund discounted its assets by more than 40%.

As Vance Spencer points out, the implied BTC price is below $9,000 as funds trade, and pressure should continue if some holders use their shares as collateral for loans.

Still, the negative sentiment that drove Bitcoin below $20,000 doesn’t mean professional investors are bearish at current price levels.

Margin traders did not close their longs

Monitoring margin and options markets provide excellent information on how professional traders are positioned, allowing investors to borrow cryptocurrency to leverage their trading positions.

For example, you can increase your exposure by borrowing stablecoins to buy an additional Bitcoin position. On the other hand, Bitcoin borrowers can only use the cryptocurrency for a short period of time because they are betting that the price of the cryptocurrency will fall. Unlike futures contracts, the balance between margin longs and shorts does not always match.

OKX USDT/BTC margin lending ratio. Source: OKX

The chart above shows that the margin lending ratio of OKX traders increased from November 8 to 10, indicating that traders did not close their leverage lengths despite the 25.4% price correction.

Additionally, the metric continues to favor stablecoin borrowing by a wide margin, indicating that traders are maintaining bullish positions.

Options markets have turned bearish

Traders should scan the options markets to see if Bitcoin can retake the $18,500 support. A 25% delta skew is a telltale sign when arbitrage tables and market makers are overloaded for upside or downside protection.

The indicator compares similar call (buy) and put (sell) options and will turn positive when fear prevails because protective put options have a higher premium than risky call options.

If traders fear that Bitcoin prices will fall, the tilt indicator will move above 10%. On the other hand, generalized excitation reflects a negative 10% skewness.

Bitcoin 60 day options 25% delta curve: Source: Laevitas

As shown above, the 25% delta skew has been below 10% since October 26th, but it quickly crossed that threshold on November 8th, indicating that options traders are overestimating the risk of unexpected price declines.

Any time this metric is above 10%, it indicates that traders are fearful and reflects an interest in offering downside protection.

Related: Crypto.com’s CRO is in trouble, but a 50% price increase is in play

Dismissing FUD doesn’t happen overnight

Despite the bearish Bitcoin options indicator, the OKX margin lending rate showed whales and market makers hedging their bullish bets. Fear of contagion may explain the mixed sentiment as investors struggle to interpret the recent actions of the Crypto.com exchange, including the “accidental” transfer of 320,000 Ether (ETH) to Gate.io.

Analyst Holger Zschaepitz’s post describes the current investor sentiment as a reluctance to take risks on centralized exchanges that offer similar products and services from the now-bankrupt FTX.

As a result, derivatives reflect low confidence to recover the $18,500 support until the cryptocurrency ecosystem shows liquidity is restored.