Bitcoin price action decouples from stock markets, but not in a good way

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The stock market started to shine a little green this week and Bitcoin (BTC) is deterring from the traditional markets but not in a good way. The cryptocurrency is down 3% while the Nasdaq Composite tech-heavy stock market index is up 3.1%.

Data from the United States Department of Commerce on May 27 shows the personal savings rate fell to 4.4% in April to its lowest level since 2008, and crypto traders are concerned that the deteriorating global macroeconomic situation may leave investors with riskier assets. hatred can increase.

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For example, Invesco QQQ Trust, a $160 billion tech company-based US exchange-traded fund, is down 23% year-over-year. Meanwhile, the iShares MSCI China ETF, a $6.1 billion tracker of Chinese stocks, has fallen 20% in 2022.

To get a clear picture of the position of crypto traders, traders should analyze bitcoin derivatives metrics.

Margin traders are becoming more bullish

Margin trading allows investors to borrow cryptocurrencies and leverage their trading positions to potentially increase returns. For example, one can buy cryptocurrency by borrowing Tether (USDT) to increase exposure.

Bitcoin borrowers can only short the cryptocurrency if they bet on a fall in its price and unlike futures contracts, the balance between margin longs and shorts does not always coincide.

USDT/BTC Margin Lending Ratio on OKX Exchange. Source: OKX

The above chart shows that traders have been borrowing more USD Tether lately, as the ratio increased from 13 on May 25 to the current 20. The higher the indicator, the more confident professional traders will be with the bitcoin price.

It is worth noting that on May 18, the 29 Margin Lending Ratio reached the highest level in more than six months and this reflects bullish sentiment. On the other hand, USDT/BTC margin lending ratio below 5 is usually a bearish signal.

Options market entered into “extreme fear”

To exclude externalities specific to margin markets, traders should also analyze bitcoin options pricing. The 25% delta skew compares similar call (buy) and put (sell) options. When fear prevails the metric will turn positive because the protective put option premium is higher than that of similar risk call options.

The opposite occurs when greed prevails, causing the 25% delta slant indicator to move into negative territory. In short, if traders fear a drop in the price of bitcoin, the skew indicator will move above 8%. On the other hand, normalized enthusiasm shows a negative 8% skew.

Bitcoin 30-day option at Deribit exchange 25% delta skew. Source: Laevitas.ch

The 25% skew indicator has been above 16% since May 11, indicating an extremely unbalanced position as the market market and professional traders are unwilling to hedge pricing risk.

More importantly, the recent 25.6% peak on May 14 was the highest 25% skew ever in bitcoin’s history. Currently, there is a strong bearish sentiment in the BTC Options market.

related: Bitcoin’s Falling Price Doesn’t Affect El Salvador’s Strategy

Explain the duality between margin and options

One possible explanation for the divergent mindset among BTC margin traders and options pricing could be the collapse of the Tera USD (UST) on May 10th. Market makers and arbitrage desks could suffer huge losses as stablecoins have lost their pegs, resulting in a reduced risk appetite. BTC options.

Furthermore, according to Loanscan.io, the cost of borrowing USD Tether on Aave and Compound has fallen by 3% per year. This means traders will take advantage of this low-cost leverage strategy, which will increase the USDT/BTC margin lending ratio.

There is no way to predict what will cause bitcoin to end its current bearish trend, so access to cheap financing does not guarantee positive price action.

The views and opinions expressed here are solely those of Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.