Bitcoin Pros Betting on $24K - Is BTC Rally Here to Stay?

Key points:

• Bitcoin's price surged beyond the most bullish projections following the US Federal Reserve's plans to raise interest rates by 25 basis points.
• Fed Chair Jerome Powell made it clear that the employment data is their current focus. However, the ADP's private sector payroll survey for January showed that hiring was slower than anticipated at 106,000, compared to the 160,000 consensuses. 
• The margin lending ratio of OKX traders increased drastically on January 30th, which shows that professional traders added leverage long after Bitcoin bounced from the $22,500 support. 
• The 25% delta skew metric, is currently hovering around negative 5, indicating similar odds for downside and upside from options traders.
• Overall, the data suggest that options traders are currently flirting with an optimistic bias. As long as traditional markets remain in favor of Bitcoin, this trend is likely to continue.

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On February 1st and 2nd, Bitcoin's price surged beyond the most bullish projections following the US Federal Reserve's plans to raise interest rates by 25 basis points.

In a press conference, Fed Chair Jerome Powell made it clear that the employment data is their current focus. However, the ADP's private sector payroll survey for January showed that hiring was slower than anticipated at 106,000, compared to the 160,000 consensuses. 

This news fueled speculation of future rate hikes by the Fed, leading to a 6.5% increase in Bitcoin's value over five hours. While exciting, it is important to note that the improvement in crypto market sentiment is largely due to the risk-on attitude in traditional markets. 

Stocks with poor operating margins, such as Coinbase, Cloudflare, Unity Software, and DoorDash, saw substantial gains on February 2nd.

It is also important to remember that Bitcoin's 40-day correlation to the S&P 500 is still above 75%, which indicates that the recent gains might not be sustainable. Additionally, regulatory headwinds could be having an effect on Bitcoin's upside. 

Huang Yiping, an ex-member of the Monetary Policy Committee at the People's Bank of China and Peking University's National School of Development economics professor, believes a permanent ban on cryptocurrencies could be detrimental to the regulated financial system, despite his criticism of Bitcoin lacking an intrinsic value.

Professional traders' leverage positions after Bitcoin's recent price breakout can be assessed by looking at the derivatives metrics. 

Margin markets give insight into traders' positioning

The margin lending ratio of OKX traders increased drastically on January 30th, which shows that professional traders added leverage long after Bitcoin bounced from the $22,500 support. 

OKX stablecoin to BTC margin lending ratio. Source - OKX

On January 29th, the indicator had its lowest level in more than eleven weeks at 13, favoring stablecoin borrowing significantly, which implies that shorts were not confident about building bearish leveraged positions. 

As of now, the margin lending ratio is at 24 and bulls are becoming more comfortable with the $22,500 support.

The recent rally has made options traders more risk-averse 

The 25% delta skew is an important indicator that reveals whether arbitrage desks and market makers are overcharging for upside or downside protection. 

This metric compares call (buy) and put (sell) options, and will move above 10% when traders fear a Bitcoin price crash. A negative 10% skew reflects generalized excitement.

BTC 60D options 25% delta skew: Source - Laevitas

The 25% delta skew metric, which compares the premium for call and put options, is currently hovering around negative 5, indicating similar odds for downside and upside from options traders.

This lack of fear, coupled with the lack of demand from margin traders willing to short Bitcoin, suggests that the derivatives markets overall present a bullish outlook. However, traditional markets remain a key determinant of Bitcoin's trend, so investors should not become too complacent.

The 25% delta skew can be used to measure the level of fear in the market. When traders are fearful, the protective put options premium is higher than the call risk options, causing the skew to move above 10%. On the other hand, a negative 10% skew suggests a market driven by excitement.

Overall, the data suggest that options traders are currently flirting with an optimistic bias. As long as traditional markets remain in favor of Bitcoin, this trend is likely to continue. Investors should keep an eye on the 25% delta skew for any signs of stress, as this could signal a change in the market's outlook.