3 Reasons Why Bitcoin Price Clings to $38,000

Bitcoin (BTC) was unable to break out of the 26-day descending channel. Investors are uncomfortable holding on to volatile assets after the US Federal Reserve pledged to cut its $9 trillion balance sheet.

While inflation was rising around the world, the first signs of an economic slowdown emerged as UK retail sales fell 1.4% in March. Moreover, Japanese industrial production fell 1.7% in March. Finally, US GDP declined by 1.4% in the first quarter of 2022.

Bitcoin/US dollar price in FTX. Source: TradingView

This bearish macroeconomic scenario can partly explain why bitcoin has been in a downtrend since early April. However, one needs to analyze the attitude of professional traders, and the derivatives markets provide some excellent indicators.

Bitcoin futures premiums are muted

To understand whether the current downtrend reflects the sentiment of top traders, one must analyze the premium for Bitcoin futures, also known as the “base”.

Unlike a perpetual contract, these fixed-calendar futures contracts do not have a financing rate, so their price will differ significantly from regular spot exchanges. Bearish market sentiment leads to three-month futures trading at 5% or less of the annual premium (base).

On the other hand, a neutral market should offer a baseline of 5% to 12%, which reflects the unwillingness of market participants to secure bitcoins cheaply until the deal settles.

Bitcoin futures premium for 3 months. Source: laevitas.ch

The above chart shows that the Bitcoin futures premium has been below 5% since April 6, which indicates that futures market participants are reluctant to open long (buy) positions for leverage.

Options traders stay in the ‘fear’ zone

To rule out the externalities of a futures instrument, traders should also analyze the options markets. An equivalent delta deviation of 25% compares to put (call) and put (put) options. The indicator will turn positive when “fear” prevails because the premium for protective selling options is higher than for buying options.

The opposite is proven when the market makers are bullish, causing the delta to deviate 25% into negative territory. Readings between negative 8% and positive 8% are considered neutral.

Deribit Bitcoin 30-day options at 25% delta skew. Source: laevitas.ch

The above chart shows Bitcoin option traders indicating “fear” since April 8, just as BTC broke below $42,500 after a 10% drop in four days. Of course, this metric can reflect BTC’s negative 16% price performance over the past month, so it’s not exactly a surprise.

Margin markets maintain optimism

Margin trading allows investors to borrow cryptocurrencies and leverage their trading position, thus increasing the potential returns. For example, a trader can buy cryptocurrencies by borrowing Tether (USDT) to increase their exposure.

On the other hand, bitcoin borrowers can only short the cryptocurrency because they are betting that its price will fall. Unlike futures contracts, the balance between long and margin positions is not always the same.

OKEx USDT/BTC Margin Lending Ratio. Source: OKEx

The chart above shows that traders have been borrowing more bitcoin lately, with the ratio dropping from 20 on April 30 to the current 12.5. The higher the index, the more confident professional traders will be in the bitcoin price.

Despite some additional bitcoin borrowing activity aimed at betting on a price dip, margin traders remain mostly bullish, according to the USDT/BTC lending ratio.

Bitcoin traders fear a further correction as macroeconomic indicators deteriorate as investors anticipate the potential impact of the crisis on riskier markets. However, there are no signs of short (negative) leveraged margin bets or futures, which means sellers lack conviction at $38,000.

The opinions and opinions expressed here are solely those of author and do not necessarily reflect the opinions of Cointelegraph. Every investment and trading movement involves risks. You should do your research when making a decision.