Stocks are starting to turn a little green this week, with Bitcoin (bitcoin) are decoupling from traditional markets, but not very well. The cryptocurrency fell 3%, while the Nasdaq Composite Index of technology stocks rose 3.1%.
Data from the U.S. Department of Commerce on May 27 showed that individuals savings Interest rates fell to 4.4% in April, the lowest level since 2008, and cryptocurrency traders feared that deteriorating global macroeconomic conditions could fuel investor aversion to risk assets.
For example, the Invesco QQQ Trust, a $160 billion U.S. exchange-traded fund based on technology companies, has fallen 23% so far this year. Meanwhile, the $6.1 billion Chinese equity tracker iShares MSCI China ETF is down 20% in 2022.
To gain a clearer picture of where crypto traders are positioned, traders should analyze Bitcoin derivatives indicators.
Margin traders are increasingly bullish
Margin trading allows investors to borrow cryptocurrencies and leverage their trading positions to potentially increase returns. For example, cryptocurrencies can be purchased by borrowing Tether (USDT) to expand exposure.
Bitcoin borrowers can only short the cryptocurrency if they bet on its price falling, and unlike futures contracts, the balance between margin longs and shorts doesn’t always match.
The chart above shows that traders have been borrowing more USD Tether recently as the ratio increased from 13 on May 25 to 20 now. The higher the indicator, the more confidence professional traders have in the Bitcoin price.
Notably, the 29 margin loan ratio reached on May 18 was the highest in more than six months, reflecting bullish sentiment. On the other hand, a USDT/BTC margin lending ratio below 5 is usually a bearish sign.
Options market enters ‘extreme panic’
To rule out externalities specific to the margin market, traders should also analyze Bitcoin options pricing. A 25% delta skew compares similar call (buy) and put (sell) options. When fear prevails, the indicator turns positive, as protective puts are at a premium over similarly risky calls.
When greed prevails, and vice versa, causing the 25% delta skew indicator to move into negative territory. In short, if traders are concerned about a collapse in the price of Bitcoin, the skew indicator will exceed 8%. On the other hand, general excitement reflects a negative 8% bias.
The 25% skew indicator has been above 16% since May 11, indicating an extremely uneven situation as market markets and professional traders are reluctant to take downside pricing risk.
What’s more, the recent 25.6% peak on May 14 was the highest 25% deviation in Bitcoin’s history.Currently, there is a strong bearish sentiment in BTC options market.
Explain the duality between margin and options
One potential explanation for the different mindsets between BTC margin traders and options pricing could be Terra USD (UST) Crash on May 10. Market makers and arbitrage sectors may have suffered significant losses as stablecoins lost their peg, reducing their risk appetite for BTC options.
Additionally, the cost of borrowing USD Tether has dropped to 3% per year, according to Aave and Compound. Loanscan.io. This means that traders will take advantage of this low-cost leverage strategy, thereby increasing the USDT/BTC margin borrowing ratio.
It is impossible 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 represent only author Does not necessarily reflect Cointelegraph’s views. Every investment and trading action involves risk. You should do your own research when making a decision.