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Trusted Third Parties Are Security Holes – Bitcoin Magazine

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Below is a direct excerpt from Marty’s Bent Issue #1283: “Trusted third parties are security vulnerabilities.” Subscribe to the newsletter here.

The contagion event that has been going on for the better part of 2022 appears to be materially affecting Genesis Trading and its parent company, Digital Currency Group (DCG). It became apparent that Genesis didn’t have the best due diligence in place when issuing loans to counterparties because they had to write two nine-figure loans to zero this year after lending money to Three Arrows Capital and Alameda Research.



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Cryptocurrency

DXY rebounded at the key support, reducing the chance of Bitcoin breaking the $17.2K resistance

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On December 2, the US Dollar Index (DXY), an index that measures the dollar’s strength against a basket of major foreign currencies, reached 104.40, the lowest level seen in 5 months.

To summarize, the US dollar’s weight against the major basket of foreign currencies grew by 19.6% in 2022 through late September as investors looked for protection from the impact of a hawkish Federal Reserve and, more recently, rising energy costs and the impact of rising inflation. .

The decline in the US dollar may be a temporary correction to neutralize the “overbought” situation, as the top of 114.60 was the highest level in 20 years. However, its inverse correlation with Bitcoin (BTC) is still going strong, as analyst Thecryer noted on Twitter:

Note how DXY’s daily rebound to 105.50 from a low of 104.40 happened when Bitcoin faced a flash breakdown of $230 to $16,790. These movements reinforce how the performance of cryptocurrencies remains dependent on traditional markets.

Bitcoin enthusiast Aldo Apache noted that the DXY “bullish divergence at support” occurred as the S&P 500 stock market index struggled with a vital resistance level.

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According to the analyst, the net effect for bitcoin is negative if the projected path confirms with the US dollar gaining strength against major fiat currencies and the stock market facing another downside.

On-chain metrics also paint a potentially bearish picture as bitcoin miners, fearful of entering a A new wave of surrenderBitcoin reserves sales increased. For example, the record hash rate and increasing energy costs have severely cut miners’ profitability.

Multi stream from the Glassnode miner, which measures Bitcoin outflows from miners’ wallets As for the one-year moving average, it is now at a six-month high.

Let’s take a look at derivative metrics to better understand how professional traders fare in the current market conditions.

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Bitcoin margin buying is declining sharply

Margin markets provide insight into how professional traders position as they allow investors to borrow cryptocurrencies to leverage their positions.

For example, one can increase exposure by borrowing stablecoins to buy Bitcoin. Bitcoin borrowers, on the other hand, can only short the cryptocurrency because they are betting that its price will fall. unlike FuturesThe balance between long and margin positions is not always identical.

OKX/BTC stable margin lending ratio. Source: OKX

The chart above shows that OKX traders’ margin lending ratio fell sharply from November 27 to November 30, indicating that professional traders reduced their long leveraged contracts during the decline towards $16,000.

More importantly, the subsequent gains of $1,250 that took bitcoin to $17,250 on November 30 were not enough to instill confidence in bitcoin buyers using stablecoin borrowing. However, currently at 23, the metric favors stablecoin borrowing by a wide margin – indicating that short positions are not confident of building bearish leveraged positions.

Related: Cryptocurrency miners in Russia are taking advantage of the bear market by hoarding ASIC hardware

Options traders are still risk averse

Traders should analyze the options markets to understand if Bitcoin will successfully break the $17,250 resistance. A delta deviation of 25% is a significant sign when arbitrage desks and market makers overcharge for upside or downside protection.

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The indicator compares similar buy (buy) and sell (sell) options and will turn positive when fear spreads because the premium of protective call options is higher than risk call options.

In short, the deviation measure will move above 10% if traders are afraid of a Bitcoin price crash. On the other hand, generalized arousal reflects a negative bias of 10%.

Bitcoin 60-day options 25% delta skew: Source: Laevitas

As shown above, the delta skew decreased by 25% between November 21st and November 30th, indicating that options traders have reduced their bets on unexpected price dumps. However, the trend reversed on December 1 after the $17,250 resistance proved to be stronger than expected.

Right now, at 18%, the delta skew indicates that investors are still scared and reflects the lack of interest from whales and market makers in offering downside protection.

Thus, professional traders are not confident that Bitcoin will reclaim $18,000 anytime soon, which can be explained by the high correlation with the traditional markets.

Until the DXY sets a more accurate trend and the S&P 500 shows strength at 4000, the trend favors bears over bitcoin.

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