BTC price falls below 55-day support at USD 27,000, but futures market resistance raises hopes for a recovery towards USD 28,000.
The Bitcoin price broke below its 55-day support at USD 27,000 on May 12. As a result, the two-day correction of 7% to USD 26,155 triggered the liquidation of USD 100 million in long BTC futures contracts.
However, the Bitcoin futures and margin markets showed strength during the move lower, fueling hope for a recovery toward USD 28,000.
Regulatory Pressure and Dollar Strength Take Their Toll
Regulatory uncertainty in the United States increased significantly after Bitcoin miner Marathon Digital received another subpoena. The publicly traded mining company informed investors on May 10 that it had received a subpoena from the U.S. Securities and Exchange Commission (SEC) in connection with the possibility that it may have violated federal securities laws, including through the use of related-party transactions.
In addition, there is a new risk of 627,522 Bitcoins held by Grayscale’s GBTC Trust Fund, which has been trading at a steep discount for more than a year, while Grayscale’s holding company, Digital Currency Group (DCG), struggles with some bankrupt subsidiaries. DCG’s cryptocurrency lending and trading business, Genesis Capital, filed for Chapter 11 bankruptcy protection in January.
In spite of having separate corporate structures, Genesis Capital had “intercompany obligations” to the DCG holding company, so the implications for Grayscale’s fund management are unknown. In addition, the group reportedly owes Gemini’s clients some USD 900 million, and the US SEC filed charges against Genesis and Gemini in January.
Bitcoin’s 7.2% correction came as the dollar strength index (DXY), which measures the U.S. currency against a basket of currencies, showed strength. The gauge hit 101 on May 8, approaching a 12-month low, a sign of low confidence in the government’s ability to curb inflation while managing to raise the debt limit.
Historically, there has been an inverse correlation between the DXY index and risk assets such as Bitcoin, as a weaker dollar tends to drive demand for alternative value stocks and scarce assets.
Some Bitcoin Margin Market Traders Are Somewhat less Optimistic
Margin markets provide insight into the position of professional traders, as they allow investors to borrow cryptocurrencies to leverage their positions.
OKX, for example, offers a margin lending indicator based on the stablecoin/BTC ratio. Traders can increase their exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only bet on the cryptocurrency’s falling price.
The margin lending ratio of OKX traders decreased between May 8 and May 11. However, this is not worrisome, as these traders continue to favor bullish strategies, as the demand for stablecoins (going long) currently exceeds the demand for BTC (being short) by a factor of 18 times, which is healthy.
No Signs of Panic after the Bitcoin Price Drop
To exclude externalities that could have affected only the margin markets, traders should analyze the metric of long and short positions. This metric collects data on the positions of clients of different exchanges in spot, perpetual, and quarterly futures contracts, thus providing better information on the position of professional traders.
Despite Bitcoin breaking below the USD 28,000 support, professional traders have increased their leveraged long positions using futures, according to the long and short positions indicator.
By Marina Meza
