The Bitcoin market has experienced a notable downtrend since it reached $70,300 on May 27. Currently priced near $67,500, Bitcoin has seen a 4% drop in just two days. Despite this decline, the $66,000 support level, which has held firm since May 17, provides some reassurance to bullish investors who are not yet alarmed by this correction.
However, potentially concerning data comes from the Bitcoin derivatives markets. As of May 29, the number of Bitcoin-equivalent leverage bets, known as open interest, rose to a 16-month high. This raises questions about market stability, particularly as open interest often reflects leveraged bet positions which can lead to steep drops during corrections.
Investors are shifting away from fixed-income positions, favoring Bitcoin’s performance. Macro trends have influenced Bitcoin significantly.
The S&P 500 is currently just 1.2% below its all-time high of 5,342 from May 23, indicating a robust stock market. Additionally, the 5-year Treasury yield has increased to 4.63% from 4.34% two weeks ago, suggesting that traders are moving away from fixed-income positions. This shift was particularly notable following weak demand at a Treasury Department auction on May 28, which pushed the benchmark yield to levels that stock investors may find concerning.
On May 29, the aggregate Bitcoin futures open interest reached 516,000 BTC, the highest since January 2023 and a 6% increase over the past week.
The Chicago Mercantile Exchange (CME) leads the market with a 30% share, followed by Binance with 22% and Bybit with 15%. This substantial open interest, equivalent to $34.8 billion, presents a double-edged sword for the market. High open interest can indicate bullish sentiment, showcasing a strong appetite for Bitcoin futures. However, over-reliance on leverage among bulls means that a typical 10% market correction could trigger cascading liquidations, exacerbating the price drop.
Notably, Bitcoin’s price has shown resilience since regulatory pressures in the United States have eased. Positive regulatory developments include the approval of a spot Ethereum exchange-traded fund (ETF), the Senate’s vote to repeal the Securities and Exchange Commission’s proposed SAB 121 accounting rule, and Congress passing the FIT 21 reform, allowing most crypto to be treated as commodities and regulated by the Commodity Futures Trading Commission (CFTC). These factors collectively favor Bitcoin bulls.
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