Bitcoin bulls are confident even as key BTC price metric hits new low

Bitcoin bulls are confident even as key BTC price metric hits new low

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Margin trading allows an investor to borrow money or cryptocurrency to take advantage of their trading position and increase their size or expected return. For example, borrowing Tether (USDT) will buy Bitcoin (BTC), thereby increasing exposure. Although there is an interest rate associated with the loan, the trader expects the appreciation in the price of BTC to compensate for it.
New traders may not know this, but investors can borrow BTC to trade a short position, thereby betting on the price falling. This is why some analysts are watching the total loan amount of Bitcoin and Tether to see if investors are bullish or bearish.

Interestingly, the data shows that even though the price of Bitcoin is aiming for a new all-time high, the BTC / USDT borrowing ratio on OKEx has hit its lowest level since November 20, 2020. While that number still favors the bulls, it raises questions about what the catalysts are behind the movement.

Bitcoin price in USD (above) and USDT / BTC loan ratio (below). Source: TradingView, OKEx

Whenever traders borrow USDT or other stablecoins, they are probably using it for long cryptocurrencies. In contrast, BTC loans are mainly used for short positions.

This means that theoretically, whenever the USDT / BTC loan ratio goes up, the market is trending up. The reverse movement indicates greater demand for Bitcoin shorts.

As the chart above shows, USDT loans on OKEx have held up to around eight times larger than Bitcoin-denominated loans. Although bullish, it is near the lowest level since November 17, 2020.

Bear borrowing rates have never been lower

Unlike perpetual futures contracts (reverse swaps), margin trades take place in regular spot markets. To start margin trading, a trader only needs to transfer collateral funds to a margin account. Most exchanges offer 3x to 10x leverage, depending on the volatility of the asset and market conditions.

This indicator has halved since late February, despite BTC hitting a new high of $ 61,800 and the daily candle holding above $ 55,000 for the past 17 days. Nonetheless, a rise in the Bitcoin borrowing rate would undoubtedly cause BTC shorts to reduce their leverage.

Bitfinex BTC short term loan rate. Source: BFX rates

According to data from Bitfinex, BTC’s short-term loans have fallen by 1% per annum. Therefore, high costs are certainly not the source of BTC’s much smaller borrowing activity. Although OKEx does not provide a chart, the Poloniex and Quoine exchanges showed a similar trend, according to data from Coinlend.

Bulls held their long positions despite rising fees

Traders who bet on a negative price change should borrow BTC to trade a short position. Even in this situation, they will still have to pay interest and exchange it for US dollars or stablecoins. To complete the transaction, the buyer must buy back the BTC hoping for a lower price and return it to the lender with the additional interest.

Bitfinex USD short term lender rate. Source: BFX rates

This time around, there was a massive hike in the USD lending rate in mid-March, with Bitcoin surpassing $ 60,000. The long leverage frenzy quickly recovered when BTC fell 13% over the next few days, causing fiat and stablecoin lending rates to normalize.

Traders looking to borrow USD or stablecoins to buy Bitcoin have paid 15% to 23% per year over the past few weeks. This rate is probably the reason why the OKEx USDT and BTC borrowing ratio is not increasing despite the strength of Bitcoin’s prices.

At present, the loan ratio favors the bulls

A measly 1% annualized fee was not enough to entice borrowers to sell Bitcoin, which is a positive indicator. If there had been a demand, the borrowing rate would have increased.

Therefore, traders should not perceive the OKEx loan to margin ratio at its lowest level in five months as a bearish signal.

Even though a 23% markup for long purchases is considerably expensive, there is room for additional leverage. Therefore, $ 60,000 becoming a support level for Bitcoin shouldn’t come as a surprise.

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