Certain market watchers are of the speculative opinion that Bitcoin’s run may have finally topped out, at least for now. BTC fell 8% from its May 22 all time high of above $111,000, ending a 45 day 50% rally that started in early April. According to the latest “Bitfinex Alpha” report released June 2, this pullback was not only necessary, it was overdue. But while it cleared out the overheating from the system, the aftermath may set up short-term instability.
This Bitcoin correction coincided with a macro event involving a US Court of Appeal ruling that reinstated disputed import tariffs. The decision sent mayhem through bond markets, with 30 year Treasuries yields above 5% for the first time since 2009. Risk assets, including Bitcoin, sold off.
From Hot to Cool: The Mechanics of the Bitcoin Correction
The ongoing Bitcoin correction has been sharp but not panicky, with more profit taking and leverage resetting. Spot Bitcoin ETFs had been on a tear in May. According to Bloomberg Intelligence, investors put in $6.2 billion into Bitcoin ETFs in the first 4 weeks of the month, while taking out $2.7 billion from gold ETFs.
Experts say the rotation out of traditional safe havens into digital assets was the sign of growing institutional demand.
However, that narrative hit a speed bump on May 30 when BlackRock’s iShares Bitcoin Trust (IBIT) had its largest daily outflow ever, an outflow of $431 million, thus ending its 30 day streak. Total outflows across all spot Bitcoin ETFs was $616 million that day, the highest since February 26, according to Farside Investors.
These outflows were believed to not be random as they happened during a period of high unrealized profits. The Relative Unrealised Profit indicator, a metric that compares the current price of Bitcoin to its average acquisition cost, hit +2 standard deviation, something that has only happened 16% of the time in Bitcoin’s history. It has been a precursor to short, volatile corrections as holders rush to lock in gains.
Leverage Got Flushed But It May Not Be Over Yet
The Bitcoin correction also triggered a rapid unwind of leveraged positions, especially in derivatives markets. Perpetual futures open interest had grown so large during Bitcoin’s run to above $111,000 and the selloff took out many overlong positions.
Bitcoin options saw the same story. Open interest hit $49.4 billion, $6 billion above the January high, before dropping back to around $39 billion after the May 29 expiry. According to the Bitfinex Alpha report, this was due to increased institutional activity but also means the market is more prone to big moves as global liquidity tightens.
Importantly, the report notes that this leverage flush reset the funding conditions across both futures and options. In other words the market has realigned itself from speculative froth to organic buying and selling activity. Which means a healthier base for any upside.
Treasury Yields and Bitcoin Volatility
The intersection of this Bitcoin correction with the decision to put back the import tariffs draws a lot of attention. Market watchers are saying this would lead to renewed trade tensions and a risk-off sentiment across the globe. Treasury yields pulled capital out of the speculative corners, including crypto.
However, despite the outflows and the price drop, Bitcoin dominance rose to 63% as of June 3rd according to CoinMarketCap. As of the time of this publication, Bitcoin is trading at $105,309.46. Total market cap is $3.31 trillion with 24 hour volume of $112 billion. Bitcoin dominance is still strong even in the correction.
What the On-Chain Data Is Telling Us Now
Currently, Bitcoin is only 6.5% off the all-time high. This doesn’t seem like much, but on-chain metrics are saying more volatility is coming. Realized gains have accelerated and profit taking behavior usually means short term volatility.
This is because high profitability puts pressure on the spot market. When more investors want to cash out, the market has to absorb those coins with organic demand. If that demand isn’t strong enough, the price drops.
But it’s not all bearish. The leverage flush and options expiry also gives the market a chance to reset. According to the Bitfinex Alpha report, the cooling off period now creates the structural conditions for a more sustainable rally, not driven by speculative leverage but by steady accumulation.
Conclusion
The 8% Bitcoin correction may have scared some but reports show it also purged the unsustainable leverage and reset the market dynamics. Officials believe the correction has reportedly cooled off the overheated positions and reduced the systemic risk but short term is still volatile.
Bitcoin has done well after leverage resets but the combination of macro stress and profit taking can still cause chop. Traders and investors should expect price swings as ETF flows and interest rates evolve.
FAQs
What caused the recent Bitcoin correction?
The 8% Bitcoin correction was caused by a mix of macro factors such as Treasury yields due to tariff rulings; and internal crypto market dynamics like leveraged position liquidations and ETF outflows.
Is the Bitcoin bull run over?
Not necessarily. This pullback might be a healthy reset, flushing out excess leverage. Market structure looks more balanced now which could support future gains.
How did Bitcoin ETFs influence this correction?
ETFs saw heavy inflows and outflows. On May 30, $616 million was withdrawn from spot Bitcoin ETFs, signaling a shift in institutional sentiment and causing price volatility.
What role did leverage play in the correction?
Perpetual futures and options had a lot of open interest. The correction unwound many of those positions, reducing systemic risk but also causing big intraday moves.
What does the market look like now?
Short term turbulence is likely but with leverage cleaned out and funding reset, the path is clearer for more sustainable price action going forward.
Glossary
Bitcoin Correction: A short term decline in Bitcoin’s price after a strong up trend, used to remove excess speculation.
ETF (Exchange-Traded Fund): A type of investment fund traded on stock exchanges, which in this case offers exposure to Bitcoin without actually holding it.
Leverage: Borrowed capital to increase potential returns, used in futures and options trading.
Realised Gains: Profits actually locked in by selling an asset, as opposed to “unrealised” paper gains.
Open Interest: Total number of active contracts in the derivatives market. High open interest means more volatility.
Treasury Yields: Interest rates on US government bonds, which affects risk appetite in global markets.
Bitcoin Dominance: Percentage of total crypto market cap that is in Bitcoin.
Sources
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