Bitcoin is facing tough challenges as it attempts to break above the $27,500 mark, with investors concerned about stricter regulatory scrutiny and the possibility of a global recession.
Following FTX’s bankruptcy in November 2022, investors expect the regulatory environment to get tighter. Recently, the United States Securities and Exchange Commission (SEC) has taken action against two leading exchanges, Coinbase and Binance, in what some analysts suggest is an attempt to redeem itself for failing to police FTX.
Moreover, investors fear that a global recession is looming, holding down the upside potential of risk-on assets such as stocks, cryptocurrencies, and emerging markets. The Eurozone, for instance, has entered a recession in the first quarter of this year, and poor economic performance can limit the European Central Bank’s ability to raise interest rates to fight inflation.
Billionaire Ray Dalio, founder of Bridgewater Associates, warns of high inflation with elevated real interest rates in the US, raising concerns of excess debt supply amid a shortage of buyers. Moreover, recent macroeconomic data has been mostly negative, with China reporting a 4.5% decline in imports year-over-year, and Japan posting a 0.3% quarter-over-quarter contraction in gross domestic product.
Bitcoin Derivatives Metrics
To better understand how professional traders are positioned amid the weaker global environment, let’s examine Bitcoin derivatives metrics.
Margin markets, which allow investors to borrow cryptocurrency to leverage their positions, provide insight into traders’ 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. Conversely, Bitcoin borrowers can only bet on the decline of a cryptocurrency’s price.
The chart above indicates that OKX traders’ margin-lending ratio spiked on June 5 after Bitcoin crashed by 7% to $25,500. The traders were likely caught by surprise since the indicator reached an impressive 62 favoring longs, which is highly unusual and unsustainable. The OKX margin-lending ratio adjusted to 34 on June 6 as leveraged longs reduced their exposure, and additional margin was likely deposited.
Investors should also analyze the Bitcoin futures long-to-short metric as it excludes externalities that only affected the margin markets. According to CoinGlass, both OKX’s and Binance’s top traders reduced their long-to-short ratios between June 7 and June 8, indicating a lack of confidence.
Bitcoin Outlook
Overall, Bitcoin bulls appear to be in a tight spot from the worsening regulatory crypto environment and the global economic crisis unfolding. Bitcoin derivatives markets indicate a low probability of the BTC price breaking above $27,500 in the short to medium term. In other words, Bitcoin’s market structure is bearish, with a $25,500 support retest being the most likely outcome.
The Bottom Line
Bitcoin is encountering tough resistance at the $27,500 mark, with investors concerned about stricter regulatory scrutiny and a possible global recession. Bitcoin bulls are in a tight spot, and the derivatives market indicates a low probability of breaking above $27,500. The most likely outcome is a support retest at the $25,500 level. Therefore, investors should be cautious with their investment decisions in the short to medium term.
