Bitcoin price action disconnects from stock markets, but not in a good way

Bitcoin price action disconnects from stock markets, but not in a good way – Mail Bonus

This week, stock markets started to flash a little green and Bitcoin (BTC) is disconnecting from traditional markets but not in a good way. The cryptocurrency has fallen by 3% while the Nasdaq Composite Technical Stock Market Index has risen by 3.1%.

On May 27, data from the US Department of Commerce showed that the personal savings ratio fell to 4.4% in April to reach its lowest level since 2008, and cryptocurrency buyers are worried that deteriorating global macroeconomic conditions could increase investors’ aversion to risky assets.

For example, the Invesco QQQ Trust, a $ 160 billion technology company based on US stock exchange trading, has fallen by 23% so far this year. At the same time, the $ 6.1 billion iShares MSCI China ETF, which tracks Chinese equities, has fallen by 20% in 2022.

To get a clearer picture of how cryptocurrencies are positioned, traders should analyze Bitcoin derivatives.

Traders’ margins are becoming bullish

Margin trading enables investors to borrow cryptocurrency and use their trading position to potentially increase returns. For example, you can buy cryptocurrencies by borrowing Tether (USDT) to increase your exposure.

Bitcoin borrowers can only support the cryptocurrency if they bet on its price reduction and unlike futures contracts, the balance between margins and short currencies is not always consistent.

USDT / BTC Margin on OKX Exchange. Source: OKX

The chart above shows that traders have been borrowing more USD Tether lately, as the rate rose from 13 on May 25 to the current 20. The higher the indicator, the more confident the professionals are with Bitcoins prices.

It should be noted that the loan-to-value ratio 29 reached on 18 May was the highest in more than six months and it reflected a bullish attitude. On the other hand, the USDT / BTC margin lending rate is below 5 normally bearish signals.

Optional markets go into “great fear”

To rule out external market-specific effects, traders should also analyze the pricing of Bitcoin options. The 25% delta error compares similar call (buy) and sell (sell) options. The measure will be positive when fear prevails because the protective put option is higher than similar risk options.

The opposite is true when greed prevails, causing the 25% delta error indicator to move to the negative zone. In short, if traders fear a collapse in Bitcoin prices, the error indicator will exceed 8%. On the other hand, the general voltage reflects a negative 8% error.

Bitcoin 30 day options 25% delta error at Deribit exchange. Source: Laevitas.ch

The 25% error rate has been above 16% since 11 May, indicating a very imbalance because market markets and professional traders are not prepared to take pricing risks.

More importantly, the recent 25.6% high on May 14 was the biggest 25% error in Bitcoin history. Currently, there is a strong sense of bearishness in the BTC options markets.

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Explains the dichotomy between margin and options

A possible explanation for the different mentality between BTC margin trading and option pricing could have been the collapse of Terra USD (UST) on 10 May. Market makers and arbitration offices may have lost a lot as stablecoin lost its connection and consequently reduced their risk appetite. for BTC options.

In addition, the cost of borrowing USD Tether has fallen to 3% per year on Aave and Compound, according to Loanscan.io. This means that traders will take advantage of this cheap indebtedness policy and thus increase the USDT / BTC margin lending ratio.

There is no way to predict what would cause Bitcoin to put an end to the current bearish trend, so access to cheaper financing does not guarantee a positive price action.

The views and opinions expressed herein are theirs alone author and do not necessarily reflect the views of Cointelegraph. Every investment and business involves risk. You should do your own research when making a decision.