Bitcoin (BTC) experienced considerable volatility between April 25 and May 1, ranging from $27,200 to $30,000. From a trading perspective, the 10.5% move sounds alarming, which translated to $340 million in liquidations of BTC leveraged futures contracts.
However, from a broader angle, the price of Bitcoin is up 72% year to date, while the S&P 500 stock index accumulates gains of 9%.
The price of BTC rises due to the weakness of the dollar and the banking crisis
Bitcoin’s bull run came as the Dollar Strength Index (DYX), which measures the US currency against a basket of currencies, was nearing its lowest level in 12 months.
The indicator stands at 102, down from 105.3 eight weeks earlier, as investors discounted higher probabilities of new US Treasury interventions to contain the banking crisis.
May 1st, the California Department of Financial Protection and Innovation closed First Republic Bank (FRB) and transferred its control to the Federal Deposit Insurance Corporation (FDIC). The FDIC then entered into a purchase and assumption agreement with JPMorgan to protect depositors. FRB joined Silicon Valley Bank and Signature Bank in becoming the latest US bank to go under in 2023.
Now, the upcoming Federal Reserve interest rate decision on May 3 is making Bitcoin investors question the sustainability of the $28,000 support level. By pushing interest rate returns closer to 5%, the central bank removes incentives for investments in risky markets, therefore essentially negative for the price of Bitcoin.
Let’s take a look at derivatives metrics to better understand how professional traders are positioning themselves in the current market environment.
Bitcoin Margin Markets Show Modest Optimism
Margin markets offer insight into how professional traders are positioned because they allow investors to borrow cryptocurrencies to leverage 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 April 17 and April 30. This is a worrying thing as it shows that leverage has been used to support Bitcoin price gains.
In addition, the 43% ratio in favor of “long” contracts on BTC on April 27 was the highest level in 40 days, indicating overexcitement as Bitcoin flirted with $30,000, which adjusted to 32% after the latest correction to $28,400.
To exclude externalities that could have affected only the margin markets, one must analyze the long-to-short metric. In addition, it collects data on the positions of the exchange’s clients in spot, perpetual and quarterly futures contracts, thus offering better information on how professional traders are positioned.
BTC Derivatives Markets Show No Bearish Signs
There are occasional methodological discrepancies between different exchanges, so readers should look at the changes rather than the absolute numbers.
Even though Bitcoin failed to break the $30,000 resistance, professional traders have increased their leveraged long positions using futures, according to the long-to-short indicator.
On the OKX cryptocurrency exchange, the ratio of long to short positions rose sharply, from 0.66 on April 27 to 0.93 on May 1.. On the other hand, on Binance the long-short ratio also increased, favoring long contracts, going from 1.12 on April 25 to a high of 1.26 on April 30.
Therefore, Despite the 5% price drop from a high of $29,970 on April 30, bears using futures contracts were not confident enough to add leveraged shorts. Simply put, even if Bitcoin reaches $28,000 again, bulls should not throw in the towel just yet, as both margin and futures market indicators remain healthy.
This article does not contain investment advice or recommendations. All investments and trades involve risk, and readers should do their own research when making a decision.
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