Bitcoin may have shown strength by quickly recovering from the $25,500 support level on June 6, but that doesn’t mean the break above $27,500 will be an easy task.
Investors are still expecting tighter regulatory scrutiny following FTX’s bankruptcy in November 2022, including recent lawsuits against Coinbase and Binance.
In the last six months, the US Securities and Exchange Commission (SEC) has taken a total of eight cryptocurrency-related enforcement actions. Some analysts suspect the SEC is trying to redeem itself for the lack of oversight of FTX by cracking down on the top two exchanges.
Additionally, from a broader perspective, investors fear that a global recession is imminent, limiting the upside potential of risky assets such as equities, cryptocurrencies and emerging markets.
The euro zone entered a recession in the first quarter of this year, according to revised estimates from the region’s statistics office, Eurostat, released on June 8th. Poor economic performance could limit the European Central Bank’s ability to raise interest rates further to fight inflation.
Billionaire Ray Dalio, founder of Bridgewater Associates, said the US is experiencing stubbornly high inflation along with elevated real interest rates. Dalio warned of an excessive debt supply given the lack of buyers, which is of particular concern given the US government’s desperate scramble to raise cash after hitting the debt ceiling.
The latest macroeconomic data has been mostly negative, particularly after China announced a 4.5% yoy fall in imports on June 6th. In addition, as of June 7, Japan’s gross domestic product fell 0.3% qoq.
Let’s look at Bitcoin (BTC) derivatives metrics to better understand how professional traders are positioned in the weaker global environment.
Bitcoin margin and futures favor bullish momentum
Margin markets provide insight into how professional traders are positioned as they allow investors to borrow cryptocurrencies to leverage their positions.
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. On the other hand, Bitcoin borrowers can only bet on the fall in the price of a cryptocurrency.
OKX stablecoin/BTC margin lending ratio. Source: OKX
The chart above shows that OKX traders’ margin-lending ratio surged on June 5 after Bitcoin plunged 7% to $25,500. Those traders were probably caught off guard as the indicator hit an impressive 62 in favor of long positions, which is highly unusual and unsustainable.
The OKX margin-lending ratio was adjusted to 34 on June 6 as leveraged long positions were forced to reduce their exposure and likely additional margin was deposited.
Investors should also analyze the long-to-short metric for bitcoin futures as it excludes externalities that may have only impacted the margin markets.
Bitcoin long-to-short ratio of exchanges top traders. Source: CoinGlass
There are occasional methodological discrepancies between exchanges, so readers should focus on changes rather than absolute numbers.
Both OKX and Binance top traders reduced their long-to-short ratios between June 7th and 8th, indicating a lack of confidence. More specifically, the ratio for OKX top traders dropped to 0.78 on June 8th after peaking at 1.08 on June 7th. Meanwhile, the long-to-short ratio on crypto exchange Binance fell to 1.29 on June 8 from 1.35 the previous day.
Related: Bitcoin rally falters as SEC cracks down on exchanges, increasing the likelihood of BTC price capitulation
Overall, bitcoin bulls appear to be in bad shape, both due to the deteriorating crypto regulatory environment and the unfolding global economic crisis.
Bitcoin derivatives markets are suggesting that the likelihood of BTC price surging above $27,500 in the short to medium term is slim. In other words, Bitcoin’s market structure is bearish, making a retest of the $25,500 support level the most likely outcome.
This article is provided for general informational purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.
This article does not contain any investment advice or recommendations. Any investment and trading venture involves risk, and readers should do their own research when making their decision.
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