Bitcoin may have shown strength by quickly recovering from the $25,500 support level on June 6, but that does not mean breaking above $27,500 is going to be an easy task.
Investors are still expecting more stringent regulatory scrutiny after FTX’s November 2022 bankruptcy, including recent lawsuits against Coinbase and Binance.
In the last six months, the United States Securities and Exchange Commission (SEC) has taken a total of eight actions related to cryptocurrencies. Some analysts suggest that the SEC is trying to redeem itself for failing to police FTX by taking action against the two major exchanges.
Also, from a broader perspective, investors fear a global recession is imminent, limiting gains in risky assets like stocks, cryptocurrencies and emerging markets.
The eurozone entered recession in the first quarter of this year, according to revised estimates by the region’s statistical office, Eurostat, published on June 8. Poor economic performance could limit the European Central Bank’s ability to continue raising interest rates to head off inflation.
Billionaire Ray Dalio, founder of Bridgewater Associates, he claimed that the United States is seeing stubbornly high inflation along with high real interest rates. Dalio warned of an oversupply of debt amid a shortage of buyers, which is especially worrying as the US government is desperate for cash after the debt ceiling was hit.
The latest macroeconomic data has been mostly negative, especially after China announced a 4.5% decline in its imports year-on-year on June 6. In addition, Japan posted a 0.3% qoq contraction in gross domestic product on June 7.
Let’s take a look at the metrics for Bitcoin derivatives (BTC) to better understand how professional traders are positioning themselves in the midst of a weaker global environment.
Bitcoin Margin and Futures Support Bullish Momentum
margin markets they allow to know the position of professional traders, since they allow investors to borrow cryptocurrency 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 price of a cryptocurrency falling.
The chart above shows that OKX traders’ margin lending ratio spiked on June 5 after Bitcoin fell 7% to $25,500. These traders were probably caught by surprise, as the indicator reached an impressive 62 in favor of the longs, which is highly unusual and unsustainable.
The OKX margin gauge adjusted to 34 on June 6 as leveraged longs were forced to reduce their exposure and additional margin was likely posted.
Investors should also look at the long-short metric for Bitcoin futures, as it excludes externalities that might have affected margin markets only.
There are occasional methodological discrepancies between different exchanges, so readers should keep an eye on the changes rather than the absolute numbers.
Both OKX and Binance top traders lowered their long-to-short ratios between June 7-8, indicating a lack of confidence. More precisely, the OKX top traders ratio declined to 0.78 on June 8 after peaking at 1.08 on June 7. For its part, on the Binance crypto exchange, the ratio between longs and shorts fell to 1.29 on June 8, from 1.35 the day before.
Overall, Bitcoin bulls appear to be in a bad spot, both due to the worsening cryptocurrency regulatory environment and the unfolding global economic crisis.
Bitcoin derivatives markets indicate a low probability that the BTC price will break above $27,500 in the short to medium term. In other words, the market structure of Bitcoin is bearish, so a retest of the $25,500 support is the most likely outcome.
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