Bitcoin saw significant fluctuations between April 25 and May 1, ranging between $27,200 and $30,000, resulting in $340 million in leveraged BTC futures contract liquidations. However, from a broader perspective, the BTC price is up 72% year-to-date in 2023, while the S&P 500 stock market index accumulated 9% gains.
BTC price climbs on weaker U.S. dollar, banking crisis
Bitcoin’s bull run happened while the dollar strength index was nearing its lowest level in 12 months, down from 105.3 eight weeks prior, as investors price in higher odds of further interventions from the United States Treasury to contain the banking crisis. The California Department of Financial Protection and Innovation closed down First Republic Bank (FRB) and transferred control to the Federal Deposit Insurance Corporation (FDIC) on May 1. The FDIC then entered into a purchase and assumption agreement with JPMorgan Chase to protect depositors. FRB joined Silicon Valley Bank and Signature Bank to become the latest U.S. bank to collapse in 2023.
The upcoming Federal Reserve decision on interest rates on May 3 is causing Bitcoin investors to question the sustainability of the $28,000 support level. By pushing the rate return closer to 5%, the central bank removes incentives for risk markets investments; hence, it’s essentially negative for the price of Bitcoin.
Bitcoin margin markets show modest optimism
Margin markets provide insight into how professional traders are positioned. OKX, for instance, provides a margin lending indicator based on the stablecoin/BTC ratio. The above chart shows that OKX traders’ margin lending ratio increased between April 17 and April 30. The 43% ratio favoring BTC longs on April 27 was the highest level in 40 days, indicating overexcitement as Bitcoin flirted with $30,000.
To exclude externalities that might have solely impacted the margin markets, traders should analyze the long-to-short metric. Even though Bitcoin failed to break the $30,000 resistance, professional traders have increased their leveraged long positions using futures, according to the long-to-short indicator. Therefore, despite the 5% price decline from a high of $29,970 on April 30, the bears using futures contracts were not confident enough to add leveraged shorts. Simply put, even if Bitcoin falls to $28,000, bulls should not yet throw in the towel, as both margin and futures market indicators remain healthy.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.