On December 2, the US Dollar Index (DXY), an index that measures the strength of the dollar against a basket of major foreign currencies, hit 104.40, the lowest level seen in 5 months.
To recap, the weight of the US dollar against the basket of major foreign currencies has risen 19.6% in 2022 through September as investors seek protection against the impact of a hawkish Federal Reserve and, more recently , rising energy costs and the effect of high inflation. .
The decline in the US Dollar may have been a temporary correction to neutralize its “overbought” condition, as the high of 114.60 was the highest level in 20 years. Still, its inverse correlation to Bitcoin (BTC) remains strong, as analyst Thecryer points out on Twitter:
$DXY $BTC pic.twitter.com/jG9HmYN8Mg
— Thecryer (@HumpBackCrypto) December 2, 2022
Notice how the intraday DXY retracement to 105.50 from the 104.40 low occurred when Bitcoin faced a flash crash from $230 to $16,790. Such moves reinforce how the performance of cryptocurrencies remains co-dependent on traditional markets.
Bitcoin enthusiast Aldo the Apache noticed that the DXY “bullish divergence at support” occurred as the S&P 500 stock index struggled with a vital resistance level.
$DXY with bullish divergence at support while $SPX is coming is at major resistance.
What does this mean for $BTC? Another leg down IMO. pic.twitter.com/PK3Ku0zZrl
— Aldo the Apache (@AldotheApache77) December 2, 2022
According to the analyst, the net impact for Bitcoin is negative if the expected trajectory is confirmed with the strengthening of the US dollar against major fiat currencies, and the stock market faces another leg down.
The on-chain metrics also paint a potentially bearish picture as Bitcoin miners feared entering a new wave of surrender, increased sales of BTC reserves. For example, the record hash rate and rising energy costs have significantly reduced the profitability of miners.
Glassnode’s miner outflow multiple, which measures BTC outflows from miner wallets against their one-year moving average, is now at its highest level in six months.
Let’s look at derivatives metrics to better understand how professional traders are positioning themselves under current market conditions.
Bitcoin margin is long see drastic reduction
Margin markets provide insight into the position of professional traders, as they allow investors to borrow cryptocurrency to leverage their positions.
For example, one can increase exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only sell the cryptocurrency because they are betting on its price falling. Unlike futures contracts, the balance between long and short margins is not always equal.
The chart above shows that the margin lending ratio for OKX traders declined firmly from November 27-30, signaling that professional traders reduced their leverage during the decline towards $16,000.
More importantly, the subsequent gain of $1,250 that took Bitcoin to $17,250 on Nov. 30 was not enough to inspire confidence in Bitcoin buyers using stablecoins. Yet, currently at 23, the metric favors stable borrowing by a wide margin – indicating that shorts are not confident about building bearish leveraged positions.
Related: Crypto Miners in Russia Take Advantage of Bear Market by Hoarding ASIC Devices
Options traders remain cautious
Traders need to analyze the options markets to understand if Bitcoin will manage to break the resistance at $17,250. The 25% delta skew is a telltale sign whenever arbitrage desks and market makers overcharge for upside or downside protection.
The indicator compares similar call (call) and put (sell) options and turns positive when fear prevails, because the protection premium of put options is higher than that of risky call options.
In a nutshell, the skewness measure will jump above 10% if traders fear a fall in Bitcoin price. In contrast, generalized excitement reflects a negative bias of 10%.
As shown above, the 25% delta bias decreased between November 21 and November 30, indicating that options traders reduced their bets on unexpected price declines. However, the trend reversed on December 1 after the $17,250 resistance proved stronger than expected.
Currently at 18%, the delta skew signals that investors are still skittish and reflects a lack of interest from whales and market makers in offering downside protection.
Therefore, professional traders are not convinced that Bitcoin will recover $18,000 soon, which can be explained by the high correlation with traditional markets.
Until the DXY index sets a more precise direction and the S&P 500 shows strength at 4,000, the trend favors Bitcoin bears.
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
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