Cryptocurrency markets are a volatile investing area that attracts traders and investors from all over the world. On May 12th, one of the most popular cryptocurrencies, Bitcoin, experienced a 7 % correction, dropping to $26,155 from $27,000. This sharp drop caused about $100 million worth of Bitcoin futures contracts to be liquidated.

The fall may have been fueled by the increasing regulatory risk in the United States caused by Marathon Digital, a publicly-traded mining company, receiving a subpoena from the U.S. Securities and Exchange Commission. The heavy burden of Grayscale's GBTC Trust Fund, which holds ~627,523 Bitcoins and has been trading at a marked discount for over a year also adds to the concern. Additionally, both Genesis and Gemini (held by Digital Currency Group's, DCG) have faced issues with the U.S. SEC.

The last cue for the drop is attributed to the U.S. dollar strength index (DXY), which measures the currency against a basket of foreign exchanges. The indicator reached almost 12 month low on the 8th of May, hinting at a low-confidence in the government’s ability to contain inflation. We typically find a inverse correlation between the DXY index and risk-on assets like Bitcoin, as a weaker dollar increases the demand for alternative store-of-values and scarce assets.

To gain better understanding of traders' positions during the down-move, analyses of derivatives metrics are being done. Margin markets show insight into how professional traders holding, as they allow investors to borrow cryptocurrencies to leverage their positions.

The margin lending ratio by OKX decreased between 8th and 11th of May. Nonetheless, that is promising since the stablecoin (long) demand still superseded the BTC (short) demand by a factor of 18 times. Additionally, the long-to-short ratio on OKX spiked from 0.92 to 1.01 and remained stable at 1.13 on Binance, suggesting traders are staying confident in bullish strategies.

Overall, the comprehensive analysis of derivatives metrics indicates that despite the 7% drop in price, professional traders have yet to give up on bullish strategies. With the safe harvesting of data from various exchanges, the strength for Bitcoin to reclaim $28,000 appears to be far higher than succumbing to the next support level at $24,500. It is thus urged suggesting caution and gaining knowledge on the risks involved with investing in cryptocurrencies before making any decisions.



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