Bitcoin (BTC) traders felt continued downward pressure after the BTC price dropped 5.5% on March 7. The higher odds of further interest rate hikes by the US Federal Reserve and regulatory pressure in the cryptocurrency space explain part of this move.
Financial markets showed signs of tension as the inverted bond curve hit its highest level since the 1980s. Long-term yields stalled at 4%, while 2-year Treasury bills traded above 5% in March.
Longer-dated government bond yields have lagged behind the rising two-year reference point since July, resulting in an inverted curve distortion that usually precedes an economic downturn. According to Bloomberg, the index hit a full percentage point on March 7, the highest level since 1981 when Fed Chairman Paul Volcker faced double-digit inflation.
This week, BlackRock, the world’s largest asset manager, raised its forecast for US federal funds to 6%. Rick Rieder, chief investment officer of BlackRock’s global fixed income, believes the Fed will keep interest rates high for “an extended period to slow the economy down and bring inflation down to close to 2 percent.”
Fear of cryptocurrency regulations is growing
According to a Wall Street Journal report, the Biden administration wants to apply a wash sale to cryptocurrencies, which would put an end to a strategy where a trader sells and then immediately buys digital assets for tax purposes.
Moreover, the Public Companies Accounting Oversight Board, the organization that oversees the audits of public companies in the United States, recently issued a warning to investors about the reserves confirmation reports that audit firms send out.
The organization, backed by the U.S. Securities and Exchange Commission, said: “Investors should note that PoR orders are not audits and therefore related reports do not provide any significant assurance.”
Let’s take a look at derivatives indicators to better understand how professional traders are positioned in the current market conditions.
Bitcoin margin markets have returned to normal
Escrow markets provide insight into the position of professional traders as they allow investors to borrow cryptocurrency to leverage their positions.
For example, you can increase your exposure by borrowing stablecoins and buying Bitcoin. Bitcoin borrowers, on the other hand, can only take short bets against the cryptocurrency.
The chart above shows that the margin ratio for OKX traders fell dramatically on March 9, moving away from a situation that was previously conducive to leveraged long positions. Given the general bullishness of crypto traders, the current credit margin ratio of 16 is relatively neutral.
On the other hand, a credit margin ratio above 40 is very rare, even though it has been the norm since February 22. This is partly due to the high funding costs for stablecoins, at 25% per year. After the recent anomaly, the margin market has returned to a neutral to optimistic state.
Option traders price a low risk of extreme price corrections
Traders should also analyze options markets to understand if the recent pullback has made investors more risk averse. The 25% delta slope is a telltale sign whenever arbitration offices and market makers overpay for protection up or down.
The indicator compares similar call (call) and put (put) options and takes a positive value when fear dominates because the premium for protective put options is higher than the premium for risky call options.
In short, if investors are predicting a fall in the price of Bitcoin, the skew rate will rise above 10%, and generalized excitement has a negative skew factor of 10%.
Related: The US REPO task force lists cryptocurrencies as a target for activities involving $58 billion in sanctioned assets
Even though Bitcoin failed to break the $25,000 resistance on Feb. 21 and then experienced a 14% correction in 16 days, the 25% delta slant has remained in the neutral zone for the past month. The current positive 3% deviation indicates balanced demand for bullish and bearish options.
Derivatives data shows that professional traders are not inclined to fall, as evidenced by the neutral risk assessment made by option traders. In addition, the credit margin indicator indicates that the market is improving as demand for bearish bets has emerged, but the structure remains neutral to optimistic.
Given the massive downward pressure on prices from a macroeconomic perspective, as well as continued regulatory pressure in the US, the bulls should probably be pleased that Bitcoin derivatives have remained solid.
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This article does not contain investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making decisions.