Bitcoin’s price (BTC) fell below its 55-day support at $27,000 on May 12, resulting in a two-day, 7% correction to $26,155 and liquidating $100 million worth of long BTC futures contracts. However, during the downturn, Bitcoin’s margin and futures markets displayed strength, offering hope of a recovery toward $28,000.
Regulatory Pressure, Stronger U.S. Dollar Bite
Uncertainty around regulation in the United States spiked after Bitcoin miner Marathon Digital received another subpoena from the U.S. Securities and Exchange Commission (SEC) over whether it violated federal securities laws by using related-party transactions. The Grayscale Bitcoin Trust also poses a threat to the market, with 627,522 Bitcoin trading at a steep discount for over a year. Grayscale’s holding company, Digital Currency Group (DCG), has struggled with some failing subsidiaries, and its crypto lending and trading firm Genesis Capital filed for Chapter 11 bankruptcy protection in January. Additionally, the group owes Gemini’s clients about $900 million, and the U.S. SEC charged Genesis and Gemini in January. Meanwhile, Bitcoin’s 7.2% correction occurred as the U.S. Dollar Strength Index (DXY), which measures the U.S. currency against a basket of foreign currencies, showed strength, reaching 101 on May 8.
Historically, there has been an inverse correlation between the DXY index and risk-on assets like Bitcoin, given that a weaker dollar tends to drive demand for alternative stores of value and scarce assets.
Bitcoin Margin Market Traders Slightly Less Optimistic
Margin markets provide insight into how professional traders position themselves because they allow investors to borrow cryptocurrency to leverage their positions. OKX provides a margin lending indicator based on the stablecoin/BTC ratio, where traders can increase their exposure by borrowing stablecoins to buy Bitcoin, while Bitcoin borrowers can only bet on a decline in price. OKX traders’ margin lending ratio decreased between May 8 and May 11, but it remains healthy as stablecoin demand currently surpasses BTC demand by a factor of 18.
No Signs of Panic Selling After Bitcoin Price Crash
The long-to-short metric excludes externalities that may only impact margin markets and offers more data on how professional traders position themselves. Despite Bitcoin falling below the $28,000 support, professional traders increased their leveraged long positions using futures, according to the long-to-short indicator. At OKX, the long-to-short ratio increased from 0.92 on May 8 to 1.01 on May 12, while at Binance, the long-to-short ratio stabilized at 1.13, indicating no shift to a bearish position from whales and market makers. This movement indicates that traders using margin and futures contracts are confident in Bitcoin’s ability to reclaim $28,000 rather than falling to the next support level near $24,500.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.