Bitcoin’s price has fallen below its 55-day support level of $27,000, causing $100 million worth of long BTC futures contracts to be liquidated. The two-day, 7% correction resulted in a drop to $26,155, but Bitcoin margin and futures markets remained strong, providing hope of a recovery towards $28,000. Despite this, regulatory uncertainty in the United States has increased. Marathon Digital, a publicly traded mining company, received another subpoena from the SEC concerning whether it may have violated federal security laws.
Furthermore, there is additional risk associated with the 627,522 Bitcoins held by the Grayscale GBTC Trust Fund, which has been trading at a steep discount for over a year. Grayscale’s holding company, Digital Currency Group (DCG), is struggling with some failing subsidiaries, including its crypto lending and trading firm, Genesis Capital, which filed for Chapter 11 bankruptcy protection in January. Although Genesis Capital had separate corporate structures from DCG, it had “intercompany obligations” with DCG, making it unclear what the consequences will be for the administration of the Grayscale funds. Additionally, the group reportedly owes Gemini’s clients about $900 million, and the U.S. SEC charged Genesis and Gemini in January.
Bitcoin’s 7.2% correction coincided with the strength of the dollar strength index (DXY), which measures the U.S. currency against a basket of foreign exchanges. The indicator reached 101 on May 8, indicating low-confidence in the government’s ability to curb inflation while simultaneously managing to increase the debt limit. Historically, there has been an inverse correlation between the DXY index and risk-on assets such as Bitcoin.
Margin markets provide insight into how professional traders are positioned because they allow investors to borrow cryptocurrency to leverage their positions. OKX provides 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 decline of the cryptocurrency’s price. The long-to-short metric gathers data from exchange clients’ positions on spot, perpetual, and quarterly futures contracts, offering better information on how pro traders are positioned. Despite Bitcoin falling below the $28,000 support, professional traders have 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. Meanwhile, at Binance, the long-to-short ratio stabilized at 1.13, indicating there was no shift to a bearish position from whales and market makers. Thus, despite the 12% price decline from a high of $29,865 on May 6, traders using margin and futures contracts did not abandon their bullish stance. This movement indicates confidence that Bitcoin is more likely to reclaim $28,000 than succumb to the next support level near $24,500.