Bitcoin (BTC) has been fighting for $ 47,500 support since the December 4 crash, a move that wiped out over $ 840 million in leveraged long futures contracts. The downward movement came after the advent of the Omicron variant of the coronavirus and the latest data that showed US inflation hits a 40-year high.
Bitcoin / USD price at FTX. Source: TradingView
While newcomers may have feared last month’s 26 percent price correction, whales and avid investors may MicroStrategy added to their locations. On December 9th, MicroStrategy announced that they had acquired 1,434 Bitcoin, increasing their stake to 122,478 BTC.
According to some analysts, the reason for Bitcoin’s weakness was fear of contagion, Evergrande, a leading Chinese real estate developer, defaulted on its US dollar debt on December 9th. the Expiry of $ 1.1 billion Bitcoin billion options December 10th may also have played an important role as the bears bagged a profit of $ 300 million.
Margin traders are still extremely bullish
Margin trading allows investors to leverage their positions by borrowing stablecoins and using the proceeds to buy more cryptocurrency. When these savvy traders borrow bitcoin, they use the coins as collateral for shorts, which means they are betting on a fall in price.
For this reason, some analysts monitor the total loan amounts of Bitcoin and Stablecoins to gain insight into whether investors are trending bullish or bearish. Interestingly, Bitfinex margin traders trimmed their long positions slightly before the December 4th price crash.
Bitfinex BTC margin long / total percentage. Source: Coinglass
Note that the indicator favors long positions at a decent 90%, which means that stablecoin lending is only 10% of Bitfinex’s total volume. Additionally, margin longs rebounded 94% less than 24 hours after the price crash. This suggests that even if these investors were taken by surprise, most held their positions throughout the move.
To confirm whether this move was specific to the instrument, one should also analyze the options markets. The 25% delta skew compares similar call (buy) and put (sell) options. The indicator becomes positive when “fear” prevails, as the premium for protective put options is higher than for similar risk call options.
The opposite is true when market makers are optimistic, which causes the 25% delta skew to shift into negative territory. Readings between minus 8% and plus 8% are usually considered neutral.
Deribit Bitcoin Options 25% Delta Skew. Source: laevitas.ch
The 25% delta skew was close to 6% before the December 4th Bitcoin crash, which is considered neutral. Over the next 3 days, the options market makers and whales showed moderate fear as the indicator peaked at 10%, but it currently stands at 3%.
The Bitfinex Margin Long Metric and the Options Main Risk Metric show few signs of stress in the derivatives markets. Given that these markets are used more frequently by professional traders, one can believe the narrative that Bitcoin will hit a new all-time high in early 2022.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risks. You should do your own research when making a decision.
