bitcoin
Crypto market analysts see the risk of a Bitcoin reversal increasing as the premier cryptocurrency struggles to regain the $18,000 level, but pressure from the Fed’s sudden move threatens riskier assets.
This comes at a time when long margin traders are trying to consolidate above the $17,000 level, but if headwinds from the Fed pick up, volatility in the markets could quickly send bitcoin and the cryptocurrency market lower.
Bitcoin is trading near the $17,100 level with a marginal increase during Sunday’s trading, while Bitcoin’s one-week gain is less than 1% and the market cap is $330 billion.
The US Federal Reserve System (FES) will hold a meeting on December 13 and 14 next year to discuss the fate of interest rates amid efforts to combat high inflation in the United States.
Some are now not ruling out a change in Fed policy, as strong data on services, jobs and wages could see a 0.75% increase next week instead of the 0.50% that markets had hoped for.
US data
Market analysts said prices reacted mixed on Dec. 9 after the November report on U.S. producer prices showed a 7.4% increase from 2021.
The data showed that wholesale spending continued to rise and that inflation may persist longer than investors previously thought.
Oil prices also remain in focus for investors, with WTI hitting a new annual low of $71.10 on December 8.
While the US Dollar Index (DXY), which shows the dollar’s strength against a basket of major foreign currencies, held 104.50, the index traded at 104.10, the lowest level in the last 5 months on December 4.
This suggests low confidence in the US Federal Reserve’s ability to rein in inflation without triggering a major recession.
Additional filtration
Trader gutsareon noted that volatile activity led to the liquidation of long and short positions, but this was followed by a failure of an initial breakout below $17,050. According to the analysis, stagnation in open interest in futures indicated a decline in bearish confidence.
Regulatory uncertainty could play a major role in limiting Bitcoin’s rally, as the US Securities and Exchange Commission (SEC) issued new guidance that could require publicly traded companies to disclose their exposure to the crypto asset.
The SEC’s corporate finance division said the recent crisis in the crypto-asset industry has “caused widespread disruption” and that US companies may have obligations under federal securities laws to disclose whether such events have affected their business.
Bitcoin buying margin has risen
Margin markets provide insight into how professional traders position themselves as they allow investors to borrow cryptocurrencies to leverage their positions.
While an investor can increase risk by borrowing stablecoins to buy bitcoins, bitcoin borrowers can only short the cryptocurrency because they are betting that its price will fall.
And unlike futures contracts, the balance between long positions and short positions on margin is not always the same.
Glassnode data shows that the margin lending rate of OKX traders increased from December 4 to December 9, indicating that professional traders increased their long leverage even after several failed attempts to break the $17,300 resistance.
The metric, currently at 35, favors stablecoin borrowing with wide margins, and according to Glassnode data, short positions are not confident of establishing low-leverage positions.
Fear of taking risks
Glassnode says traders should analyze the options markets to understand whether Bitcoin will ultimately withstand the downward news flow.
A 25% delta deviation is a significant milestone when arbitrage tables and market makers overpay for upside or downside protection.
The indicator compares similar call (buy) and put (sell) options and will turn positive when fear spreads because the premium of protective call options is higher than risky call options.
In short, if traders fear Bitcoin prices falling, the divergence measure would move above 10%, on the other hand, aggregated excitement reflects a negative 10% divergence.
The delta curve improved by 25% from December 4th to 9th, indicating that options traders are reducing their risk aversion due to unexpected price movements.
reluctance of market makers
However, the current delta deviation of 15% suggests that investors are still fearful as market makers are less involved in offering downside protection.
On the one hand, the lack of increased open interest with Bitcoin testing the low of the day on December 9th seems promising. However, excessive use of margin indicates that buyers may need to reduce their positions during a sudden downturn.
The longer it takes for Bitcoin to recover $18,000, the riskier the margin buying risks. Traditional markets continue to play a major role in determining direction, so a possible retest of $16,000 cannot be ruled out.