Fed Rate Pause Triggers Traders Pivot to Stocks – Will Bitcoin Catch Up?

After a momentary retest of the $25,000 support on June 15, Bitcoin gained 6.5% as the bulls successfully defended the $26,300 level. Despite this, the overall sentiment remains slightly bearish as the cryptocurrency is down 12.7% in two months.

The rejection of Binance.US’ temporary restraining order by US District Court Judge Amy Berman Jackson has something to do with improving investor sentiment. On June 16, the exchange reportedly reached an agreement with the US Securities and Exchange Commission (SEC), avoiding the freezing of its assets.

Over a longer period, the global regulatory environment has been extremely detrimental to cryptocurrency prices. Besides the SEC unilaterally trying to label exactly which altcoins it considers securities and to plead with the world’s two major exchanges, the European Union signed the Crypto-Asset Markets Regulation (MiCA) on May 31. This means that crypto companies have set deadlines. implement and comply with MiCA requirements.

Curiously, while bitcoin (BTC) performance was lackluster, on June 16 the S&P 500 index hit its highest level in 14 months. Even with this rally, JPMorgan strategists expect the rally to come under pressure in the second half of 2023 “if growth stagnates in absolute terms.”

Investors will continue to focus on the U.S. central bank, with Federal Reserve Chairman Jay Powell due to testify before the House Financial Services Committee on June 21 and the Senate Banking Committee on the morning of June 22 as part of his semi-annual testimony before lawmakers. .

Let’s take a look at Bitcoin derivatives metrics to better understand how professional traders are positioning themselves in a weaker macro outlook.

Bitcoin Margin and Futures Show Weak Demand for Leveraged Buys

Margin markets provide insight into the position of professional traders, as they allow investors to borrow cryptocurrency to leverage their 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. In contrast, Bitcoin borrowers can only bet on a cryptocurrency’s price falling.

OKX stablecoin/BTC margin lending ratio. Source: OKX

The chart above shows that the margin lending ratio for OKX traders has been declining since June 10, indicating that the overwhelming dominance of longs is over. The current 23:1 ratio favoring stablecoin lending still favors bulls, but is near five-week lows.

Investors should also analyze the Bitcoin futures long-to-short metric, as it rules out externalities that may have only affected margin markets.

Bitcoin long-short ratio of major exchange traders. Source: CoinGlass

There are sometimes methodological discrepancies between exchanges, so readers should keep an eye out for changes rather than absolute numbers.

Top OKX traders cut their shorts dramatically on June 15 as the price of Bitcoin plunged to its lowest level in three months at $24,800. However, these traders were not comfortable maintaining a ratio that favored long positions, and it has since returned to a ratio of 0.80, in line with the two-week average.

The opposite move happened at Binance, as top traders cut their long/short ratio to 1.18 on June 15, but then added longs, and the indicator sits at 1.25. Although this is an improvement, the long/short ratio of Binance’s top traders is currently in line with the average of the previous two weeks.

Related: Hawkish Fed, Stock Market Rally and Crypto Lagging

Bitcoin price gains capped despite resilience in derivative metrics

Overall, Bitcoin bulls lack the confidence to take advantage of long positions using the margin and futures markets. BTC lacks momentum as investors’ attention shifted to the stock market after the Fed decided to suspend interest rate hikes, improving the outlook for corporate earnings.

Despite the overwhelmingly negative regulatory pressure, professional traders have not turned lower, according to Bitcoin Derivatives metrics. However, the bears have the upper hand as the 20-day resistance at $27,500 strengthens, limiting the short-term upside to just 3.8%.