Bitcoin price races toward $27K, but a swift recovery is not confirmed by market data

Bitcoin (BTC) might have displayed strength by quickly recovering from the $25,500 support level on June 6, but that doesn’t mean that breaking above $27,500 will be an easy task. 

Investors still expect stricter regulatory scrutiny after FTX’s bankruptcy in Nov. 2022, including the recent ones against Coinbase and Binance.

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A total of 8 cryptocurrency-related enforcement actions have been undertaken by the U.S. Securities and Exchange Commission (SEC) over the past 6 months. Some analysts suggested the SEC is attempting to redeem itself for failing to police FTX by taking action against the two leading exchanges.

Additionally, looking at a wider angle, investors fear that a global recession is imminent, which limits the upside of risk-on assets such as stocks, cryptocurrencies, and emerging markets.

The Euro zone entered a recession in the first quarter of this year, according to revised estimates from the region’s statistics office, Eurostat, on June 8. A poor economic performance might limit the European Central Bank’s ability to further increase interest rates to tackle inflation.

Billionaire Ray Dalio, founder of Bridgewater Associates, said the U.S. is seeing stubbornly high inflation along with elevated real interest rates. Dalio warned of an excess debt offer amid a shortage of buyers, which is especially concerning since the U.S. government is desperate to raise cash after the debt ceiling was hit.

Recent macroeconomic data has been mostly negative, especially after China announced a 4.5% decline in imports year-over-year on June 6. Furthermore, Japan posted a 0.30% quarter-over-quarter gross domestic product contraction on June 7.

Let’s look at Bitcoin derivatives metrics to better understand how professional traders are positioned amid the weaker global environment.

Bitcoin margin and futures favor bullish momentum

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.

OKX stablecoin/BTC margin-lending ratio. Source: OKX

The above chart shows that OKX traders’ margin-lending ratio spiked on June 5 after Bitcoin crashed by 7% to $25,500. Those traders were likely caught by surprise as 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 were forced to reduce their exposure and additional margin was likely deposited.

Investors should also analyze the Bitcoin futures long-to-short metric, as it excludes externalities that might have solely impacted the margin markets.

Exchanges’ top traders Bitcoin long-to-short ratio. Source: CoinGlass

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

Both OKX’s and Binance’s top traders have reduced their long-to-short ratios between June 7 and June 8, indicating a lack of confidence. More precisely, the ratio for OKX top traders declined to 0.78 on June 8 after peaking at 1.08 on June 7. Meanwhile, at crypto exchange Binance, the long-to-short ratio declined to 1.29 on June 8 from 1.35 on the previous day.

Related: Bitcoin rebound falters amid SEC crackdown on exchanges, raising chance of a BTC price capitulation

Overall, Bitcoin bulls seem to be in a bad place, both from the worsening regulatory crypto environment and the unfolding global economic crisis.

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, so a $25,500 support retest is the most probable outcome.