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Is Bitcoin “Cheap” Below $40,000? BTC derivative metrics are mixed

Bitcoin (BTC) fell below the $40,000 support on April 18, and the two-week 15% correction was enough to prompt short-term predictions of $30,000 prices.

Meanwhile, regulatory uncertainties remain a top concern for investors, including the failed European Know Your Customer (KYC) and Anti-Money Laundering (AML) proposed rules for “non-hosted” private wallets. For example, just last week, exchanges started demanding additional information about their users, causing some unease among traders.

Europe regulation “almost wrong” brings distress

The European Union Parliament’s Committee on Economic and Monetary Affairs voted to ban or restrict proof-of-work-based crypto assets on March 14, but the proposed change was postponed.

More recently, Bitstamp cryptocurrency exchange updated its customers on ongoing policy upgrades on the platform in an email notification to users on April 13, with the exchange asking for additional information.

Bitstamp now requires users to provide information such as nationality, place of birth and tax residence, in addition to documents proving the origin of the crypto and annual income.

On April 14, nonprofit group Coin Center called the Securities and Exchange Commission’s (SEC) March 18 changes to the definition of “exchange” an “unconstitutional exaggeration.” If the proposal becomes an SEC rule, decentralized platforms would likely be asked to register as exchanges.

Not everything has been negative for the sector, however, as more crypto-friendly names are set to join the United States government.

On April 15, US President Joe Biden announced his intention to appoint law professor Michael Barr as deputy governor of the central bank.

Barr served on the Ripple Labs Advisory Board from 2015 to 2017 before serving as Assistant Secretary of the Treasury for Financial Institutions under former President Barack Obama.

But to get a clearer picture of how traders are positioned, there is no better tool than analyzing Bitcoin derivatives metrics.

Margin traders are increasingly optimistic

Margin trading allows investors to borrow cryptocurrency and leverage their trading position, potentially increasing returns. For example, one can buy cryptocurrencies by borrowing Tether to increase exposure.

On the other hand, Bitcoin borrowers can only short the cryptocurrency by betting on its price drop. Unlike futures contracts, the balance between longs and shorts on margin is not always even.

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OKEx USDT/BTC Margin Lending Ratio. Source: OKEx

The chart above shows that traders have been borrowing more USD Tether (USDT) lately as the ratio has increased from 13 on April 14th to 17 currently. The higher the indicator, the more confident professional traders are about the price of Bitcoin.

It is worth noting that the margin lending ratio of 20 hit on April 11 was the highest level in 6 months, indicating bullishness.

Bitcoin options show that fear prevails

However, it became difficult to predict the next move of the market as Bitcoin started to move sideways near $40,000 last week. Still, the 25% delta skew is a telling sign when arbitrage desks and market makers are overcharging for upside or downside protection.

The 25% delta skew compares similar call (buy) and put (sell) options. The metric turns positive when fear prevails because the protective premium of put options is higher than that of similar-risk call options.

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Bitcoin 30-day options show 25% delta skew: Source: Laevitas.ch

When traders fear a bitcoin price crash, the skew indicator hovers above 8%. On the other hand, general excitement reflects a negative 8% skewness.

As shown above, on April 8th, after 30 days in a neutral zone, we entered the 8% “fear” mode. Bitcoin had already fallen below $43,000 when the 25% Delta Skew indicator turned bearish sentiment.

Despite Bitcoin options negative indicator, margin trading data suggests these arbitrage desks and market makers appear confident of the decline below $40,000 to reverse.

OKX margin lending rate showed pro traders increasing their bullish bets after a 15 percent BTC price rally in 14 days, which should be reassuring for those currently underwater.

Regardless, there’s no reason to ignore bearish put options that trade at a premium. It signals that the likelihood of a price drop is still significant. As a result, sometimes the best trade is to do nothing, sit still and wait for more clarity in price action.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.