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Bitcoin price (BTC) broke below the 55-day support of $27,000 on May 12. As a result, $100 million worth of long BTC futures contracts were liquidated with a 7% adjustment to $26,155 in two days.
However, Bitcoin margin and futures markets have shown strength in the downturn, raising hopes of a rally towards $28,000.
Regulatory pressure, impact of strong US dollar
Further subpoenas have been received by Bitcoin miner Marathon Digital, further adding to U.S. regulatory uncertainty. A publicly traded mining company notified investors on May 10 that it had received a subpoena from the U.S. Securities and Exchange Commission (SEC) for allegedly using related-party transactions to violate federal securities laws and other laws.
Additionally, there is additional risk for the 627,522 bitcoins held by the Grayscale GBTC Trust Fund as Grayscale’s holding company, Digital Currency Group (DCG), struggles to dispose of several failed subsidiaries. The Grayscale GBTC Trust Fund has been trading at a deep discount for over a year. 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 the holding company DCG, so the implications for the management of the Grayscale Fund are unknown. In addition, the group reportedly owes Gemini customers about $900 million, 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 the forex basket, showed strength. The index reached 101 on May 8, nearing its lowest level in 12 months, indicating low confidence in the government’s ability to curb inflation while simultaneously raising the debt ceiling. there is
Historically, there has been an inverse correlation between the DXY index and risk-on assets such as Bitcoin, as a weak dollar tends to drive demand for alternative stores of value and scarce assets.
To get a better idea of how professional traders are positioned in the current market environment, let’s take a look at derivatives indicators.
Bitcoin Margin Market Traders Are A Little Less Optimistic
Margin markets allow investors to borrow cryptocurrencies to leverage their positions, giving them insight into where professional traders stand.
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 the price of the cryptocurrency falling.
The graph above shows that OKX traders’ margin lending ratio decreased from May 8th to May 11th. Still, the current demand for stablecoins (long) is 18 times the demand for BTC (short). This is healthy.
Related: Texas Passes Bill to Add Cryptocurrencies to State Bill of Rights
No Signs of Panic Selling After Bitcoin Price Crash
To rule out externalities that may have only impacted the margin market, traders should analyze the long-to-short indicator. The indicator collects data from exchange customers’ spot, perpetual, and quarterly futures contract positions, thus providing better information about the positions of professional traders.
Methodological discrepancies occasionally exist between different exchanges, so readers should monitor changes rather than absolute numbers.
Despite Bitcoin falling below the $28,000 support, professional traders are using futures to increase their leveraged long positions, according to the Long-to-Short Indicator.
On cryptocurrency exchange OKX, the long-to-short ratio rose from 0.92 on May 8th to 1.01 on May 12th. On Binance, on the other hand, the long-to-short ratio remained stable at 1.13, indicating no move into a bearish position. From whales and market makers.
So even though the price has fallen 12% from the May 6 high of $29,865, traders using margin and futures contracts remained bullish. The move shows confidence that Bitcoin is more likely to recapture $28,000 than succumb to the next support level near $24,500.
This article is for general informational purposes and is not intended, nor should it be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views or opinions of Cointelegraph.