Bitcoin suffered a sharp drop on July 24, with its price plummeting to $29,000. This sudden crash was attributed to significant Bitcoin holders potentially liquidating their positions. Despite this market uncertainty, Bitcoin’s three major trading metrics indicate a bullish outlook, suggesting that professional traders have not reduced their leverage longs through margin and derivatives.
Analytics firm Glassnode reported a surge in whales’ inflows to exchanges, reaching their highest level in over three years at 41% of the total Bitcoin inflows. This sell-off from whales has alarmed investors, especially considering the absence of any significant negative events impacting Bitcoin in the past month. The ongoing court cases by the United States Securities and Exchange Commission against leading exchanges Binance and Coinbase also raised concerns. However, there have been no major advancements in those cases, and it is expected to take years to reach a settlement.
The crash in Bitcoin’s price may have been influenced by the reversal of the U.S. dollar. Bitcoin had been trading within a tight 5.7% daily range for 33 consecutive days. Interestingly, while Bitcoin dropped, the S&P 500, crude oil, and MSCI China stock market index experienced gains. Gold, the world’s largest global reserve asset, also had a slight dip of 0.5% on July 24. Additionally, the U.S. Dollar Index (DXY) reversed its devaluation trend against other fiat currencies, rising from 99.7 to 101.4 between July 18 and July 24.
The DXY measures the strength of the U.S. dollar against a basket of foreign currencies. If investors believe that the Federal Reserve will successfully manage a soft landing, it makes sense for them to reduce exposure to gold and Bitcoin while increasing positions in the stock market. Lower odds of a recession can positively impact corporate earnings.
To determine if Bitcoin’s price movement to $29,000 has ruptured the market structure, it is crucial to analyze margin and derivatives markets. Margin trading allows investors to leverage their positions by borrowing stablecoins and using the proceeds to buy more cryptocurrency. The margin lending of OKX traders based on the stablecoin/BTC ratio increased between July 22 and July 24, indicating that professional traders added leveraged long positions despite the recent price crash.
In healthy markets, BTC futures contracts typically trade at a 5 to 10% annualized premium, known as contango. This premium remained at a healthy 5.7% average, confirming the resilience of margin markets. Looking at the options markets, the 25% delta skew, which reveals when traders anticipate a drop in Bitcoin’s price, remained negative. This suggests that professional traders remain unfazed by the flash crash, with no sign of pessimism among whales and market makers.
Despite the price crash, investor optimism remains high, making a recovery above $30,000 in the short term more likely. The appreciation of the U.S. dollar does not impact Bitcoin’s fundamental attributes, such as its predictable monetary policy, censorship resistance, and autonomous nature as a means of payment.
Positive triggers on the horizon include the potential approval of a spot Bitcoin exchange-traded fund and gaining regulatory clarity. A U.S. bill introduced on July 20 aims to establish a clear process for determining the classification of digital assets as commodities or securities, giving the Commodity Futures Trading Commission authority over digital commodities if it becomes law.
It is important to note that the information provided in this article is for general information purposes only and should not be taken as legal or investment advice. The views and opinions expressed here are the author’s alone and do not necessarily reflect the views and opinions of Cointelegraph.