On February 15th, the price of Bitcoin (BTC) experienced a surge of over 12%, marking its highest daily close in more than six months. This surge occurred at the same time that gold reached a 40-day low at $1,826, hinting at a potential shift in investors’ risk assessment for cryptocurrencies.
The increase in Bitcoin’s price can be traced back to a mysterious institutional investor that began buying on February 10th. According to Lookonchain’s data, nearly $1.6 billion in funds have been transferred into the crypto market between February 10th and February 15th. This influx of funds was seen in three notable USD Coin (USDC) wallets sending out funds to various exchanges.
The surge in Bitcoin’s price was further bolstered by news that the Binance exchange is preparing to face penalties and settle potential outstanding regulatory and law-enforcement investigations in the U.S., according to a February 15th Wall Street Journal report. Binance’s Chief Strategy Officer, Patrick Hillmann, added that the exchange is “highly confident and feeling really good about where those discussions are going.”
In addition to this news, the U.S. inflation report released on February 14th showed consumer prices rising 5.6% year-on-year, followed by data showing resilient consumer demand. This indicates that traders are beginning to rethink Bitcoin’s scarcity value.
To get a better understanding of how professional traders are positioned in the current market conditions, it is important to look at derivatives metrics. Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions. For example, one can increase exposure by borrowing stablecoins to buy (long) Bitcoin. On the other hand, Bitcoin borrowers can only bet against (short) the cryptocurrency.
The OKX stablecoin/BTC margin lending ratio chart shows that traders’ margin lending ratio increased between January 13th and January 15th, signaling that professional traders added leverage long positions as Bitcoin price broke above the $23,500 resistance. This suggests that there is an excessive demand for borrowing stablecoins for bullish positioning, as a stablecoin/BTC margin lending ratio above 30 is unusual.
Options traders are also an important metric to look at to understand whether the recent rally has caused investors to become more risk-averse. The 25% delta skew is a telling sign whenever arbitrage desks and market makers are overcharging for upside or downside protection. This indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put options premium is higher than risk call options.
The 25% delta skew has been neutral for the past two weeks, signaling equal pricing for bullish and bearish strategies. This reading is highly unusual considering Bitcoin gained 16.2% from January 13th to January 16th, and typically, one would expect excessive bullishness causing the skew to move below negative 10.
The derivatives markets continue to favor bullish momentum, as there is a lack of bearish sentiment in futures and options markets. Additionally, there is a decreasing appetite for bearish bets, as bears using futures markets had $235 million liquidated between January 15th and January 16th.
Overall, the recent surge in Bitcoin’s price has been attributed to a mysterious institutional investor, as well as news of Binance’s potential settlements with U.S. regulators. In addition, the U.S. inflation report and data showing resilient consumer demand have caused traders to rethink Bitcoin’s scarcity value. Looking at derivatives metrics, professional traders are adding leverage long positions, and there is a lack of bearish sentiment in futures and options markets. Although there is some concern regarding the excessive demand for borrowing stablecoins for bullish positioning, the derivatives markets continue to favor bullish momentum.