Bitcoin bulls remain bullish, but macro and crypto-specific headwinds have BTC pegged below $30K
On March 23, Bitcoin (BTC) price regained support at $28,000 after a brief correction below $27,000. The move closely followed the traditional financial sector, particularly the tech-heavy Nasdaq Index, which rose 2.1% as Bitcoin exceeded the threshold of $28,000.
On March 22, the Federal Reserve raised its benchmark interest rate by 0.25%, but indicated that it is approaching the maximum level for 2023. Ultimately, however, Fed Chairman Jerome Powell stated that it is too early to determine the extent of tightening credit conditions, so monetary policy will remain flexible.
Initially, it seems encouraging that the central bank is less inclined to increase the cost of money. However, the global economies are showing signs of stress. For example, eurozone consumer confidence fell 19.2% in March, reversing five consecutive months of gains and defying economists’ predictions of a recovery.
The recession continues to put pressure on companies’ profits and leads to redundancies. For example, on March 23, professional services company Accenture said it would terminate the contracts of 19,000 workers over the next 18 months. On March 22, Indeed, the company that helps people find jobs, let go of 2,200 workers, or 15% of its workforce.
The stronger the correlation to traditional markets, the less likely a disconnect is. As a result, according to futures and margin markets, the Bitcoin price increase has not instilled much confidence in professional traders.
Bulls and bears show a balanced demand in the margin markets
Margin trading allows investors to borrow cryptocurrency to leverage their trading position, potentially increasing their returns. For example, one can buy Bitcoin by borrowing Tether (USDT), thereby increasing their crypto exposure. On the other hand, borrowing Bitcoin can only be used to bet on price declines.
Unlike futures contracts, the balance between margin longs and shorts is not necessarily matched. When the loan-to-value ratio is high, it indicates that the market is bullish – the opposite, a low loan-to-value ratio, signals that the market is bearish.
On March 15, the Margin Market Indicator on the OKX stock exchange peaked at 60, but by March 17 it had fallen to 22. This indicates that reckless leverage was not used during the rally. Historically, levels above 40 indicate highly unbalanced demand favoring longs.
The indicator is currently at 19, indicating a balanced situation given the high cost of borrowing USD (or stablecoins) to short BTC, which stands at 15%.
Long-to-short data shows reduced demand for leveraged longs
Top traders’ net long-to-short ratios exclude externalities that may have solely affected margin markets. Analysts can better understand whether professional traders lean bullish or bearish by aggregating the positions in spot, perpetual and quarterly futures contracts.
There are occasional methodological discrepancies between different exchanges, so viewers should monitor changes rather than absolute numbers.
Related: Bitcoin likely to outperform all cryptoassets after banking crisis, analyst explains
Between March 18 and March 22, the long-to-short ratio of top traders on OKX increased, reaching a peak of 1.09, but reversed course on March 23. The indicator is currently at an eleven-day low of 0.76. Meanwhile, on the Huobi exchange, the long-to-short ratio of top traders has been flat near 1.0 since March 18.
Finally, Binance whales have consistently reduced their leverage lengths since March 17th. More precisely, the ratio fell from 1.36 to 1.09 on March 23, the lowest level in eleven days.
With Bitcoin up 13% since March 16, margin and futures markets indicate that whales and market makers were ill-prepared. This may initially appear bearish, but if the $28,000 support level holds, professional traders will likely be forced to add long positions, further accelerating the bullish momentum.
Ultimately, Bitcoin derivatives show no signs of stress. Not having excessive leverage on long positions is positive, and bears did not dare to add short positions. Nevertheless, recession risks and growing regulatory uncertainty, such as the SEC’s Wells notice against the Coinbase exchange on March 22, are likely to keep the price of Bitcoin below $30,000 for some time.
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making a decision.
