On December 2, the US dollar index (DXY), which measures the strength of the dollar against a basket of major foreign currencies, reached 104.40, the lowest level in the last 5 months.
As a reminder, the weight of the US dollar against a basket of major foreign currencies rose by 19.6% in 2022 until the end of September as investors sought protection from the hawkish influence of the Federal Reserve, and more recently, rising energy prices and the impact of high inflation. . .
The USD retreat may have been an interim correction to neutralize its overbought condition as the 114.60 peak was the highest level in 20 years. However, its inverse correlation with Bitcoin (BTC) remains strong, as analyst Thecryer notes on Twitter:
$DXY $BTC pic.twitter.com/jG9HmYN8Mg
— Thecryer (@HumpBackCrypto) December 2, 2022
Note how DXY’s intraday pullback to 105.50 from a low of 104.40 occurred as bitcoin faced a sudden $230 crash to $16,790. Such movements reinforce that the performance of cryptocurrencies remains co-dependent on traditional markets.
Bitcoin enthusiast Aldo Apache noted that the “bullish support divergence” of the DXY occurred as the S&P 500 stock market index struggled with a vital resistance level.
$DXY with a bullish divergence at the support level, while the approaching $SPX is at serious resistance.
What does this mean for $BTC? One more foot down IMO. pic.twitter.com/PK3Ku0zZrl
— Aldo Apache (@AldotheApache77) December 2, 2022
The net impact on bitcoin will be negative if the expected trajectory is confirmed, with the US dollar strengthening against major fiat currencies and the stock market facing another fall, the analyst said.
The network’s performance also paints a potentially bearish picture as bitcoin miners, fearful of a new wave of capitulation, have ramped up sales of BTC reserves. For example, record hash rates and increased energy costs have drastically reduced the profitability of miners.
Glassnode’s miner churn multiplier, which measures BTC churn from miners’ wallets relative to their yearly moving average, is currently the highest it has been in six months.
Let’s take a look at derivatives metrics to better understand how professional traders are positioned in the current market conditions.
Bitcoin margin positions plummeted
Leveraged markets provide insight into how professional traders are positioned because they allow investors to borrow cryptocurrencies to leverage their positions.
For example, you can increase your exposure by borrowing stablecoins to buy bitcoins. On the other hand, bitcoin borrowers can only sell the cryptocurrency as they are betting on its price going down. Unlike futures contracts, the balance between margined longs and shorts does not always match.
OKX/BTC stablecoin margin lending ratio. Source: OKH
The chart above shows that OKX Traders Margin Lending Ratio dropped sharply from November 27 to November 30, signaling that professional traders reduced their leveraged long positions during the fall to $16,000.
More importantly, the $1,250 subsequent profit that took Bitcoin to $17,250 on Nov. 30 was not enough to instill confidence in stablecoin Bitcoin buyers. However, the score is currently at 23, indicating a large advantage in borrowing stablecoins, indicating that shorts are unsure about building leveraged bearish positions.
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Option traders are risk averse
Traders should analyze the options markets to see if Bitcoin can successfully clear the $17,250 resistance. A skewed delta of 25% is a telltale sign whenever arbitrageurs and market makers are overpriced for upside or downside protection.
The indicator compares similar call (buy) and put (sell) options and becomes positive when fear prevails because the defensive put premium is higher than the risk of the call option.
In a nutshell, the skew rate will exceed 10% if traders fear a collapse in Bitcoin prices. On the other hand, generalized arousal reflects a negative 10 percent asymmetry.
60-Day Bitcoin Options Skewed Delta 25%: Source: Laevitas
As shown above, the 25 percent delta skew decreased between November 21 and 30, indicating that options traders have reduced their bets on the unexpected price drop. However, the trend reversed on Dec. 1 after resistance at $17,250 proved stronger than expected.
The delta is currently skewed at 18%, which signals that investors are still wary and reflects a lack of interest from whales and market makers to offer downside protection.
Hence, professional traders are unsure if Bitcoin will return $18,000 anytime soon, which can be explained by the high correlation with traditional markets.
Until the DXY index sets a more accurate direction and the S&P 500 shows strength at around 4000, the trend will be in favor of the Bitcoin bears.
The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of .
This article does not contain investment advice or recommendations. Every investment and trading step involves risk, and readers should do their own research when making a decision.