Bitcoin (BTC) price broke below the 55-day support at $27,000 on May 12. As a result, a two-day 7% correction to $26,155 resulted in the liquidation of $100 million worth of long BTC futures contracts.
However, Bitcoin’s margin and futures markets showed strength during the decline, fueling hopes of a recovery to $28,000.
Regulatory pressure, strong dollar bites
Regulatory uncertainty in the United States has increased significantly after bitcoin miner Marathon Digital received another subpoena. The publicly traded mining company informed investors on May 10 that it received a subpoena from the US Securities and Exchange Commission (SEC), asking whether it violated federal securities laws by using a related party transaction. may be infringed.
In addition, Grayscale has the added risk of 627,522 bitcoin held by the GBTC Trust Fund, which has been trading at a huge discount for over a year, while Grayscale’s holding company, Digital Currency Group (DCG), has been battling some setbacks. Is. Subsidiary companies. DCG’s crypto lending and trading firm, Genesis Capital, filed for Chapter 11 bankruptcy protection in January.
Despite having a separate corporate structure, Genesis Capital had “intercompany obligations” with its holding company, DCG, so the implications for the administration of the Grayscale Fund are unknown. In addition, the group reportedly owed approximately $900 million to Gemini customers, and the US SEC sued Genesis and Gemini in January.
Bitcoin’s 7.2% correction came as the Dollar Strength Index (DXY), which measures the US currency against a basket of foreign currencies, showed strength. The indicator hit 101 on 8 May, its 12-month low, indicating low confidence in the government’s ability to contain inflation while raising the debt limit.
Historically, there has been an inverse correlation between the DXY index and riskier assets such as bitcoin, as a weak dollar increases the value and demand for alternative stores of the scarce asset.
Let’s take a look at derivatives metrics to better understand the position of professional traders in the current market environment.
Bitcoin Margin Market Traders Are Slightly Less Optimistic
Margin markets provide insight into how professional traders are positioned, as they allow investors to borrow cryptocurrencies to leverage their positions.
For example, OKX offers a margin lending indicator based on the stablecoin / BTC ratio. Traders can increase their exposure by borrowing stablecoins to buy bitcoin. Bitcoin borrowers, on the other hand, can only bet on a decline in the price of the cryptocurrency.
The chart above shows that the Margin Lending Ratio of OKEx traders fell between May 8th and May 11th. Nevertheless, this is not a cause for concern as those traders continue to favor bullish strategies, as stablecoin (long) demand is currently outpacing BTC (short) demand. By a factor of 18 – which is healthy.
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No signs of panic selling after bitcoin price plunge
To remove externalities that may only affect margin markets, traders must analyze long-to-short metrics. This metric aggregates data from exchange clients’ positions on spot, perpetual and quarterly futures contracts, providing a better understanding of the positions of professional traders.
There are occasional methodological discrepancies between different exchanges, so readers should track changes rather than absolute numbers.
Although bitcoin broke below the $28,000 support, according to the long-short indicator, professional traders leveraged their long positions using futures.
On crypto exchange OKEx, the long-to-short ratio increased from 0.92 on May 8 to 1.01 on May 12. Meanwhile, the long-to-short ratio on Binance stabilized at 1.13, indicating no change in bearish stance from whales and the markets. the creator.
Therefore, despite a 12% drop from the May 6 high of $29,865, traders using margin and futures contracts did not abandon their bullish stance. The move signals belief that bitcoin has more chances of recovering to $28,000 than falling to the next support near $24,500.
This article is for general information purposes and is not intended and should not be construed as legal or investment advice. The views, opinions and opinions expressed here are solely those of the author and do not reflect or represent the views and opinions of Cointelegraph.
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