Interestingly, the data shows that while the bitcoin price is heading for a new all-time high, the ratio of BTC to USDT is at its lowest level since the 20th century. November on OKEX. While this figure is still in favor of the bulls, it raises questions about the catalysts for this movement.
Bitcoin price in USD (above) and USDT/BTC credit ratio. Source: TradingView, OKEx
When traders borrow USDT or other stable coins, they are likely to use them to create long cryptocurrencies. On the other hand, BTC loans are mainly used for short positions.
This means that theoretically, when the USDT/BTC credit rises, the market is tilted in a bullish direction. The reverse movement indicates increased demand for short bitcoin positions.
As can be seen in the chart above, USD balances on OKEx were about eight times larger than bitcoin balances. Although from a bullish perspective, this level is close to the lowest level since the 17th century. November 2020 is.
Loan/value rates have never been lower.
Unlike reverse swaps, margin transactions take place on the regular cash markets. To begin margin trading, a trader simply needs to transfer margin funds into a margin account. Most exchanges offer leverage of 3 to 10 times, depending on asset volatility and market conditions.
This indicator has halved since the end of February, although BTC has set a new record high at $61,800 and has held daily candles above $55,000 for the past 17 days. Still, bitcoin’s higher lending rate will likely force sellers to reduce their leverage.
Bitfinex BTC short term loan rate. Source : bfxrates.com
According to Bitfinex, the short-term lending rate for BTC has dropped to 1% per year. Therefore, the high cost is absolutely not less than the much lower borrowing of BTC. Although OKEx does not provide a chart, the Poloniex and Quoine exchanges have shown a similar trend, according to coinlend.org.
Thebulls maintained their long positions despite the rise in thecommissions.
Traders betting on negative price movements need to borrow BTC for margin trading with short positions. Even then, they would have to pay interest and exchange the money for a dollar or a stall. To close the deal, the buyer must cash in the BTC, hoping for a lower price, and return it to the lender with additional interest.
Bitfinex short-term lending rate in USD. Source : bfxrates.com
This time, in mid-March, there was a sharp rise in the US dollar exchange rate when bitcoin broke through the $60,000 mark. In the days that followed, the long-term lending frenzy quickly returned to normal as BTC fell 13%, leading to a normalization of interest rates and stability in lending rates.
Traders looking to borrow USD or stablecoins to buy bitcoin were paying between 15% and 23% per annum in recent weeks. This is likely the rate at which OKEx’s USDT and BTC balances are not increasing despite the high price of bitcoin.
Credit Ratio is now in favor ofbulls.
The meager 1% annual fee was not enough to entice borrowers to short bitcoin, which is a positive indicator. If there was demand, the borrowing rate would rise.
Therefore, traders should not view OKEx’s 5-month low margin ratio as a bearish signal.
Although the 23% margin for long positions is clearly onerous, it is possible to increase leverage. So it should come as no surprise that $60,000 will become the backing for bitcoin.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.
Margin trading allows an investor to borrow money or cryptocurrencies to leverage their trading position and increase their size or expected profit. For example, if you borrow Thera (USDT), you can buy Bitcoin (BTC), which increases the risk. Although there is an interest rate associated with borrowing, traders expect the rise in the price of BTC to offset it.
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