Bitcoin Bulls Still Bullish, But Macro and Crypto-Specific Hurdles Hold BTC Below $30K
On March 23, bitcoin (BTC) price recovered against the $28,000 support level after a brief correction below $27,000. The movement closely tracked the traditional financial sector, especially the tech-heavy Nasdaq index, which rose 2.1% as bitcoin crossed the $28,000 threshold.
On March 22, the Federal Reserve raised its benchmark interest rate to 0.25%, but indicated it was closer to its 2023 maximum level. Ultimately, however, Fed Chairman Jerome Powell said it was too soon to set limits on tightening credit conditions, so monetary policy would remain accommodative.
Initially, it appears encouraging that the central bank is less inclined to raise the cost of money. However, global economies are showing signs of stress. For example, consumer confidence in the euro area plunged 19.2% in March, reversing five consecutive months of gains and defying economists’ predictions of a recovery.
The recession is still putting pressure on corporate profits and is leading to layoffs. For example, on March 23, professional services company Accenture said it would terminate the contracts of 19,000 employees over the next 18 months. On March 22, Indeed, a company that helps people find jobs, let go of 2,200 employees, or 15% of its workforce.
The stronger the link to traditional markets, the less likely decoupling is. As a result, the rise in the price of bitcoin hasn’t inspired much confidence among professional traders, according to the futures and margin markets.
Bullish and bearish markets exhibit balanced demand
Margin trading allows investors to borrow cryptocurrencies to leverage their trading positions, which can increase their returns. For example, one can buy bitcoin by borrowing Tether (USDT), thereby increasing their crypto exposure. Borrowing bitcoin, on the other hand, can only be used to bet on a fall in price.
Unlike futures contracts, the margin is not necessarily a balance between long and short. When the margin lending ratio is high, it indicates that the market is bullish. Conversely, a low lending ratio indicates the market is bearish.
OKX USDT/BTC Margin Lending Ratio. Source: OKX
On March 15, the Margin Market Long-to-Short Indicator peaked at 60 on the OKX exchange, but had fallen to 22 by March 17. This indicates that during the rally, reckless leverage was not used. Historically, a level above 40 indicates highly imbalanced demand over the long term.
The indicator is currently at 19, indicating a balanced position, given the high cost of borrowing USD (or the stablecoin) to short BTC, at 15%.
Long-to-short data shows reduction in demand for leveraged longs
The long-to-short net ratio of top traders does not take into account the externalities that can affect the margin market as a whole. Analysts can better understand whether professional traders are leaning bullish or bearish by aggregating positions on the spot, perpetual and quarterly futures contracts.
There are occasional methodological discrepancies between different exchanges, so viewers should monitor changes rather than absolute figures.
Related: Analyst Suggests Bitcoin Could Outperform All Crypto Assets After Banking Crisis
The exchange’s top trader long-to-short ratio. Source: Coinglass
Between March 18 and March 22, the long-to-short ratio of top traders on OKX increased, peaking at 1.09, but reversed course on March 23. The indicator is currently at its lowest level in 11 days at 0.76. Meanwhile, on the Huobi exchange, the long-to-short ratio of top traders has remained stable around 1.0 since March 18.
Lastly, Binance whales have been steadily reducing their leverage since March 17. More precisely, the ratio fell from 1.36 to 1.09 on March 23, its lowest level in 11 days.
As bitcoin is up 13% since March 16, the margin and futures markets indicate that whales and market makers were ill-prepared. It might look bearish initially, but if the $28,000 support holds, professional traders could be forced to add long positions, which could lead to an increase in bullish momentum.
Bitcoin derivatives are finally showing no signs of stress. Not being overly leveraged on long positions is a positive, and bears don’t dare add to short positions. Nonetheless, bearish risks and growing regulatory uncertainty, such as the United States Securities and Exchange Commission’s Wells notice against Coinbase exchange on March 22, are likely to keep the bitcoin price below $30,000 for a while.
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This article does not constitute investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.