Author: Mary Liu, BitpushNews
The cryptocurrency entered a consolidation mode on Thursday as yesterday’s CPI-driven uptrend faded. Bitcoin was trading mostly around the $61,000 support level in early trading on Thursday before sliding towards the $65,000 support level in the afternoon. As of the time of writing, BTC is trading at $65,215, down 1.55% on a 24-hour basis.
Although yesterday’s rally was BTC’s strongest performance since late March, weak U.S. economic data increased the likelihood of a rate cut by the Federal Reserve in September, a shift that could also prompt the Bank of England and the European Central Bank to cut rates as early as June. However, three Fed officials (Cleveland Fed President Loretta Mester, New York Fed President John Williams, and Richmond Fed President Thomas Barkin) made hawkish comments in their speeches on Thursday, causing the major indexes to close lower.
At the close, the S&P and Nasdaq were both in the red, down 0.15% and 0.25% respectively, while the Dow closed flat.
In the crypto market, the performance of the Altcoin market was mixed, with the vast majority of the top 200 tokens in the market cap in the red on Thursday. Fantom (FTM) rose 12%, Core (CORE) rose 11.9%, and Jito (JTO) rose 11.7%. Newly listed community tokens Notcoin (NOT) fell 47%, Nervos Network (CKB) fell 8.7%, and Stacks (STX) fell 8.4%.
The overall cryptocurrency market cap is currently $2.35 trillion, with Bitcoin’s dominance rate at 54.6%.
Is the U.S. economy strong?
While crypto traders were excited by Wednesday’s strong rebound driven by “soft” inflation, market analyst Bloodgood warned against jumping to any hasty conclusions as CPI-driven rebounds “will never last.”
“Since the beginning of May, Bitcoin has been fluctuating between weekly support at $60,000 and daily resistance at $64,000,” he said. “Looking at the daily chart, we can see that a higher low has been formed, and at the time of writing, Bitcoin is trading just below the daily resistance.”
Bloodgood believes: “This daily level has been tested multiple times, so from a technical analysis perspective, this makes me believe that it will break sooner or later. From a more macro perspective, we can say that this rise is due to CPI news. We know that this rise will never last, so don’t rush to any conclusions now. Wait for the level to be broken and confirmed, and then trade it.”
Options traders expect Bitcoin to continue to adjust in the short term
According to CF Benchmarks’ analysis of Chicago Mercantile Exchange (CME) Bitcoin futures options, investors are prepared to pay a premium for short-term downside protection despite yesterday’s weak U.S. CPI inflation report.
CF Benchmark analysts said that despite Bitcoin breaking through the $66,000 mark after yesterday’s weak inflation, “implied volatility for out-of-the-money put options remains elevated compared to call options.”
They added that derivatives traders are willing to pay higher premiums for out-of-the-money (OTM) put options, an indicator of short-term market bearishness. The increase in OTM put option implied volatility (IV) suggests that traders are essentially hedging against a potential drop in the value of Bitcoin.
IV is a measure used in the options market that represents the market’s prediction of the likely future movement or price volatility of an asset or security.
In contrast to the short-term outlook, the analysts noted that the volatility curve between long-term put and call options is "flatter," while calls are slightly tilted. "This suggests that investors are more optimistic about Bitcoin's long-term prospects, and if expectations of deflation begin to accelerate after a favorable CPI report, it will be worth watching whether the bias for calls increases," the analysts said.
The relative calm of long-dated puts and calls could also indicate increased institutional participation, “as these investors are less prone to extreme swings in sentiment,” the CF Benchmark analysis found.
Bitcoin derivatives flat
The top traders’ long-short ratio aggregates positions across spot, perpetual, and quarterly futures contracts, and can be viewed to infer how bullish or bearish these traders are.
On OKX, the long-short ratio currently stands at 0.96, indicating that long and short positions are roughly equal, Coinglass data shows. However, this stance is less bullish compared to May 14, when the indicator was 1.25 in favor of bulls. Similarly, Binance's top traders are less bullish now compared to May 14, with the long-short ratio falling from 1.31 to 1.14.
To gauge retail trader interest, one should look at perpetual futures, also known as inverse swaps. These contracts contain an embedded interest rate that is recalculated every eight hours to compensate for imbalances in leverage demand. Essentially, negative interest rates indicate that shorts (sellers) prefer to use leverage.
Data shows that Bitcoin’s funding rate has remained below 0.01% over the past month, indicating a balance of demand between longs and shorts. Even the recent rally above $66,000 has failed to instill confidence among retail traders, according to derivatives indicators.
On the bright side, if Bitcoin eventually breaks above $68,000, it will come as a surprise to most traders as there is room for bullish leverage, thus potentially fueling a rally.
