Bitcoin has been trying to break above the $27,500 resistance for the past week, but to no avail. One of the reasons limiting Bitcoin’s (BTC) upside is the risk of an eventual US default as the government struggles to get the debt limit increase passed through Congress.
Still, some analysts and investors argue that the US debt ceiling stall is just a “show” because ultimately additional money will hit the markets.
The US Debt Ceiling talks are all show.
They’re going to print the dollar into oblivion.
You need to own hard assets to protect your wealth.#Bitcoin is the fastest horse in the race.
— MacroJack (@macrojack21) May 17, 2023
Watch as MacroJack correlates Bitcoin’s digital scarcity to the next logical step: additional inflationary pressure. Stimulus measures, ie increasing the government debt limit, may initially sound positive because they prevent default and encourage more economic activity. However, the unintended consequences are future budget constraints as interest payments on debt increase.
Bitcoin Price Rises as Gold Breaks a 45-Day Low
Bitcoin’s gains above $27,000 occurred as gold traded lower 2.5% from May 15-18, hitting its lowest level in 45 days at $1,970. Meanwhile, the US dollar index, which measures the currency against a basket of currencies, hit its highest level in two months on May 18, meaning the US currency strengthened relative to its global peers.
These data should not be interpreted as a vote of confidence in the government’s ability to avoid a shutdown, as the world economy would be negatively affected in the event of a US debt default. For example, members of the The eurozone holds $1.54 trillion in US Treasuries, followed by $1.1 trillion from Japan, $860 billion from China and $668 billion from the UK.
Strong macroeconomic data explains the resilience of equity markets
While the global economy may deteriorate in the coming months, recent macroeconomic data has been mostly positive, causing the S&P 500 Index to post modest gains in May, coming in just 13% below its all-time high.
For example, China’s retail sales grew 18.4% year-on-year in April, while eurozone first-quarter gross domestic product rose 1.3% year-over-year. In the US, retail sales rose 0.5% yoy in April, slightly less than expected but far from an indicator of recession.
Let’s look at Bitcoin derivatives metrics to better understand how professional traders are positioning themselves in the current market environment.
Bitcoin Margin and Futures Support Bullish Momentum
Margin markets provide insight into how professional traders are positioning because they allow investors to borrow cryptocurrencies to take advantage of their positions.
OKX, for example, 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 price of a cryptocurrency falling.
The chart above shows that OKX traders’ margin lending ratio increased between May 12 and May 17. Such data is in line with the Bitcoin price recovery in the period, though not problematic as the current margin lending ratio of 31 is nearing its 30-day date. average.
Investors should also look at the long-short metric of BTC futures, as it excludes externalities that might have affected margin markets only. There are occasional methodological discrepancies between exchanges, so readers should monitor changes rather than absolute numbers.
Even though Bitcoin is down 8% since May 5, professional traders have recently increased their bullish positions to their highest level in two weeks, according to the long-short indicator.
For example, the OKX ratio increased from 1.08 on May 12 to 1.25 on May 18. Meanwhile, on the Binance cryptocurrency exchange, the long-to-short ratio increased from 1.14 on May 12 to 1.25 today.
Bitcoin bulls are in a better position as there has been weak demand from short sellers and no sign of excessive leverage from buyers. In other words, the market structure of Bitcoin is bullish, so the odds favor a rally towards $28,000 if the US debt ceiling deadlock continues.
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