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Two main Bitcoin market measurements indicate that whales purchased the drop to $42,000, implying that BTC is on track to set a new all-time high by mid-June.
Whales bought the dip on futures exchanges as Bitcoin (BTC) hit the $43,000 support level for the third day in a row. Despite no major market changes, the Bitcoin futures premium has dropped to its lowest level in six months. This measure corresponds to December 11, 2020, when Bitcoin reached a low of $17,600 just 10 days after reaching an all-time high of $19,915.
In December 2020, derivatives activity sparked a 95% surge in 23 days, propelling Bitcoin to a record high of $42,000. In both cases, speculation of potentially unfavourable US legislation played a key role in the market downturn, in addition to the futures premium bottoming.
Regulatory uncertainties are back to the spotlight
This time around, U.S. Treasury Secretary Janet Yellen stated at the Washington Square Journal CEO Council Summit on May 4 that:
“There are issues around money laundering, Bank Secrecy Act, use of digital currencies for illicit payments, consumer protection and the like.”
On May 6, U.S. Securities and Exchange Commission Chair Gary Gensler deferred to Congress the possibility of increasing regulatory regulation of the cryptocurrency room. According to Gensler:
“Right now, there’s not a market regulator around these crypto exchanges, and thus there’s really no protection against fraud or manipulation.”
To add to the regulatory haze, the Securities and Exchange Commission of the United States released an investor advisory on May 11 highlighting the dangers of mutual funds with exposure to Bitcoin futures.
When Bitcoin hit an all-time high of $19,915 on December 1 and the futures premium spiked over 15%, the premium responded to the price reversal. While the 8% low seems to be close to the previous month’s average, it is very moderate given Bitcoin’s 90 percent rally in two months.
It is worth noting that as soon as the $17,600 mark demonstrated its resilience, the futures premium increased to 15%, showing optimism.
The current situation started out differently, as the industry was too bullish from the outset. However, the condition has shifted dramatically in the last week, with Bitcoin down by 26%. As a result of this change, the futures premium fell to its lowest level in six months, at 8%.
Whales aggressively bought below $43,000
However, the bearish mood on May 17 lasted just a brief time before whales decided it was time to buy the dip.
The long-to-short metric used by the top traders is measured using clients’ pooled positions, which include margin, permanent, and futures contracts. Through aggregating data from different markets, this measure gives a more comprehensive picture of experienced traders’ successful nett location.
Top OKEx traders increased their long-to-short ratio from 1.62 on May 16 to 2.74 when Bitcoin checked the $43,000 support in the early hours of May 17. According to this evidence, whales and market makers had long positions that were nearly three times greater than short positions, which is very unusual.
Although their bullish bet is still in place, it indicates a full trend from the previous week. MicroStrategy, a business analytics company, has purchased another $10 million of Bitcoin at an estimated price of $43,663.
While it may be premature to call the correction process over, there appears to be sufficient proof of the futures market bottoming and whales’ heavy purchasing interest below $43,000.
If history repeats itself and a 95% rally follows, Bitcoin could hit $83,000 by mid-June.