Since May 10, the Bitcoin (BTC) chart shows a relatively narrow range of price movement, a range in which the cryptocurrency has failed to break the $32,000 resistance multiple times.
The volatility partly reflects stock market uncertainty, as the S&P 500 index fluctuated between 3,900 and 4,180 in the same period. On the one hand, there has been economic growth in the eurozone, where the gross domestic product grew by 5.1% year-on-year. On the other hand, inflation is still soaring, reaching 9% in the UK.
Added to the volatility of Bitcoin was the proposal for a regulatory framework for digital assets presented in the United States Senate on June 7. The 69-page, bipartisan bill is supported by Senator Cynthia Lummis of Wyoming and Senator Kirsten Gillibrand of New York and addresses the CFTC’s authority over applicable digital asset spot markets.
On June 3, the South Korean Financial Supervisory Service (FSS) launched an investigation into 157 payment gateway services that handle digital assets. Earlier, on May 24, South Korean authorities opened an investigation against Do Kwon, the main figure in the Terra incident.
The United States Securities and Exchange Commission (SEC) also launched an investigation against Binance Holdings on June 6. Binance is the world’s largest cryptocurrency exchange in terms of volume and the SEC is evaluating whether the initial coin offering of the BNB token violated securities laws.
On June 6, IRA Financial Trust, a platform that offers self-managed digital asset accounts for retirement and pensions, filed a lawsuit against cryptocurrency exchange Gemini, alleging that a February 8 breach led to a loss of $36 million in crypto assets from customer accounts that were in the custody of the crypto exchange.
With all that said, let’s take a look at Bitcoin futures data to understand how professional traders, including whales and market makers, position themselves.
Derivatives metrics reflect bearish investor expectations
Traders should study the Bitcoin futures market data to understand how the professionals position themselves. Quarterly contracts are the instrument of choice for more experienced traders to avoid the fluctuating funding rate of perpetual futures.
The basis indicator measures the difference between long-term futures contracts and current cash market levels. The annualized premium for Bitcoin futures should range from 5% to 10% to compensate traders for “locking up” money for two to three months until contract expiration.
The Bitcoin futures premium has been below 4% since April 12, a typical reading for bear markets. Even more worrying is that the last time these professional traders were bullish was more than 6 months ago, when the metric crossed the 10% threshold.
To exclude futures instrument-specific externalities, traders should also pay attention to the Bitcoin options markets. The 25% delta slope is a telltale sign of when Bitcoin market makers and arbitrage desks are charging more for upside or downside protection.
During bull markets, option investors place higher odds on a price rise, causing the slope indicator to move below -12%. On the other hand, the widespread panic of a bear market induces a +12% or higher tilt.
The 30-day options delta slope has ranged between 12.5% and 23% between June 1 and 7, indicating that option traders are placing more value on the odds of a move lower. Still, it shows a modest improvement in trader stance from the previous two weeks.
Cryptocurrency regulation and weak economic data are clearly weighing on investor sentiment and derivatives data shows that professional Bitcoin traders are avoiding long leveraged positions, as well as being averse to taking downside risks.
At the moment, it is clear that the bears are comfortable leaving $32,000 as a resistance level and repeated declines to the $28,200 level are likely to continue.
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