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Will $28K Bitcoin price hold? Two indicators remain solid despite 5% pullback

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BTC margin markets and futures’ long-to-short indicator show professional traders unwilling to bet on Bitcoin's price dropping.

Bitcoin (BTC) saw considerable volatility between April 25 and May 1, ranging between $27,200 and $30,000. From a trading perspective, the 10.5% move sounds alarming, resulting in $340 million in leveraged BTC futures contract liquidations.

However, from a broader angle, Bitcoin price is up 72% year-to-date in 2023, while the S&P 500 stock market index accumulated 9% gains.

BTC price climbs on weaker US dollar, banking crisis

Bitcoin’s bull run happened while the dollar strength index (DYX), which measures the U.S. currency against a basket of foreign exchanges, was nearing its lowest level in 12 months.

The indicator stands at 102, down from 105.3 eight weeks prior, as investors priced in higher odds of further interventions from the U.S. Treasury to contain the banking crisis.

On May 1, the California Department of Financial Protection and Innovation closed down First Republic Bank (FRB) and transferred 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 to become the latest U.S. bank to collapse in 2023.

Now, the upcoming Federal Reserve decision on interest rate on May 3 is causing Bitcoin investors to question the sustainability of the $28,000 support level. By pushing the rate return closer to 5%, the central bank removes incentives for risk markets investments, hence, essentially negative for the price of Bitcoin.

Let's look at derivatives metrics to better understand how professional traders are positioned in the current market environment.

Bitcoin margin markets show modest optimism

Margin markets provide insight into how professional traders are positioned because they allow investors to borrow cryptocurrency to leverage their positions.

OKX, for instance, 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 a cryptocurrency's price.

ab37814c-31eb-4f3e-bfb8-399d3d9a55ed.pngOKX stablecoin/BTC margin lending ratio. Source: OKX

The above chart shows that OKX traders' margin lending ratio increased between April 17 and April 30. That is somewhat concerning, as it shows that leverage has been used to support the Bitcoin price gains.

Moreover, the 43% ratio favoring BTC longs 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 might have solely impacted the margin markets, one should analyze the long-to-short metric. In addition, it gathers data from exchange clients’ positions on the spot, perpetual, and quarterly futures contracts, thus offering better information on how pro traders are positioned.

Related: What the Gensler hearing means for US crypto regulation and policy

BTC derivatives markets show no signs of bearishness

There are occasional methodological discrepancies between different exchanges, so readers should monitor changes instead of absolute figures.

4fb003c8-a7b6-42b8-941b-5ea6cd28e2cc.pngExchanges' top traders Bitcoin long-to-short ratio. Source: Coinglass

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.

At crypto exchange OKX, the long-to-short ratio sharply increased, from 0.66 on April 27 to the current 0.93 on May 1. Moreover, at Binance the long-to-short ratio also increased, favoring longs, moving from 1.12 on April 25 to a 1.26 peak on April 30.

Therefore, despite the 5% price decline from a high of $29,970 on April 30, the bears using futures contracts were not confident enough to add leveraged shorts. Simply put, even if Bitcoin retests $28,000, bulls should not yet throw in the towel as both margin and futures market indicators remain healthy.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Source

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