On 2 December, the US Dollar Index (DXY), which measures the dollar’s strength against a basket of several major market currencies, reached 104.40, its lowest level in five months.
In short, the US dollar’s weight against a basket of major foreign currencies rose 19.6% in 2022 through the end of September, as investors sought protection against the effects of a tightening Federal Reserve and, more recently, rising costs for energy and oil. effect of high inflation.
The dollar pullback could be a temporary correction to neutralize its “overbought” status, given that the 114.60 peak was the highest level in 20 years. Nevertheless, its inverse correlation with bitcoin (BTC) remains strong, as analyst TheCryer noted on Twitter:
— thecryer (@HumpBackCrypto) December 2, 2022
Note how the intraday DXY retracement from a low of 104.40 to 105.50 occurred as bitcoin suffered a sudden drop from $230 to $16,790. These moves reinforce the dependence of cryptocurrencies on traditional markets.
Bitcoin enthusiast “Aldo the Apache” noted that the DXY “bullish support divergence” occurred as the S&P 500 stock index struggled with a key resistance level.
— Aldo the Apache (@AldotheApache77) December 2, 2022
According to the analyst, the net effect for bitcoin is negative if the expected path is confirmed with the US dollar strengthening against major national currencies, and the stock market faces a further decline.
On-chain metrics also paint a possible bearish picture, as bitcoin miners fear entering a new wave of dedication, they have increased the sale of their BTC reserves. For example, record hash rates and rising energy costs have significantly reduced the profitability of miners.
Glassnode’s miner exit multiple, which measures BTC withdrawals from miners’ wallets relative to its one-year moving average, is now at its highest level in six months.
Let’s look at derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Bitcoin margin has dropped drastically
Margin markets provide insight into how professional traders allow investors to borrow cryptocurrencies in order to leverage their positions.
For example, the risk can be increased by borrowing stablecoins to buy bitcoin. Bitcoin borrowers, on the other hand, can only short the cryptocurrency, as they bet on its price falling. Unlike futures contracts, the balance between long and short margin positions is not always the same.
The chart above shows that the Margin Borrowing Ratio for OKX traders has steadily declined from November 27th to November 30th, indicating that professional traders reduced their leverage during the drop to $16,000.
More importantly, the subsequent gain of $1,250 that pushed bitcoin to $17,250 on November 30 was not enough to instill confidence among bitcoin buyers using stablecoin lending. Nevertheless, currently at 23, the metric favors stablecoin lending by a wide margin – indicating that shorts are not confident in opening bearish leveraged positions.
Options traders stay away from risk
Traders should analyze the options markets to understand whether bitcoin will break above the $17,250 resistance. A 25% slope of options delta is a tell-tale sign whenever arbitrage desks and market makers are overcharging for an up or down security.
The indicator compares similar call and put options and turns positive when there is fear because the security premium for put options is higher than for riskier options.
Simply put, if traders fear a fall in the price of bitcoin, the option delta metric will move above +10%. On the other hand, normalized propagation shows a slope of -10%.
As shown above, Delta’s 25% slope decreased between November 21 and 30, indicating that options traders reduced their bets on an unexpected price decline. However, the trend reversed on December 1 after the resistance at $17,250 turned out to be stronger than expected.
Currently at +18%, the Delta gauge indicates that investors remain fearful and reflects a lack of interest from whales and market makers in providing protection to the downside.
As a result, professional traders are not confident that bitcoin will recover to $18,000 in the short term, which is explained by the high correlation with traditional markets.
Until the DXY index marks a more precise direction and the S&P 500 shows its strength at 4,000, the trend is in favor of bitcoin bears.
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