It may seem like forever and a day ago when the Bitcoin (BTC) price was trading below $18,000, but it was actually 40 days ago. In general, cryptocurrency traders tend to have a short-term memory and, more importantly, they attach less importance to negative news during bull runs. A great example of this behavior is BTC’s 15% gain since February 13, despite a constant stream of bad news in the crypto market.
For example, on February 13, the New York Department of Financial Services (NYDFS) ordered Paxos to “stop minting” the dollar-pegged stablecoin Binance USD (BUSD) issued by Paxos. Similarly, Reuters reported on Feb. 16 that a Binance.US-controlled bank account moved more than $400 million to trading firm Merit Peak, which is reportedly an independent entity also controlled by Binance CEO Changpeng Zhao.
The wave of regulatory pressure continued on February 17 when the United States Securities and Exchange Commission (SEC) announced a $1.4 million settlement with former NBA player Paul Pierce for allegedly promoting “false and misleading statements” regarding EthereumMax tokens on social networks.
None of those adverse events could break investor optimism after weak economic data signaled that the US Federal Reserve (FED) has less room to continue raising interest rates. The Philadelphia Fed manufacturing survey showed a 24% decline on February 16 and US home starts increased by 1.31 million compared to the previous month, which is lower than the expectation of 1.36 millions.
Let’s take a look at Bitcoin derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Demand for Asia-based stablecoins remains “modest”
Traders should look at the USD Coin (USDC) premium to gauge demand for cryptocurrencies in Asia. The index measures the difference between P2P stablecoin transactions in China and the US dollar.
Excessive buying demand for cryptocurrencies may push the indicator above fair value by 104%. On the other hand, the stablecoin market supply is flooded during bear markets, causing a discount of 4% or more.
USDC premium currently sits at 2.7%, which is flat compared to the previous week of February 13 and indicates modest stablecoin buying demand in Asia. However, the positive indicator shows that retail traders were not spooked by the recent news flow or the rejection of Bitcoin at $25,000.
Retail traders often avoid quarterly futures due to the difference in prices from the spot markets. Meanwhile, professional traders prefer these instruments because they avoid the fluctuation of funding rates in a perpetual futures contract.
Two-month futures annualized premium should trade between +4% and +8% in healthy markets to cover costs and associated risks. Therefore, when futures trade below this range, it shows a lack of confidence on the part of leveraged buyers. This is typically a bearish indicator.
The chart shows bullish momentum as the Bitcoin futures premium broke above the 4% neutral threshold on Feb. 16. This move represents a return to a neutral to bullish sentiment that prevailed until early February. As a result, it is clear that professional traders are more comfortable trading Bitcoin prices above $24,000.
The limited impact of regulatory action is a positive sign
While Bitcoin’s 15% price increase since February 13 is encouraging, the regulatory news flow has been mostly negative. Investors are excited about the reduced ability of the US Fed to slow down the economy and contain inflation. Therefore, one can understand how those bearish events failed to break the spirit of cryptocurrency traders.
Ultimately, the correlation with the S&P 500 50-day futures remains high at 83%. Correlation statistics above 70% indicate that asset classes are moving in tandem, which means that the macroeconomic scenario has likely determined the overall trend.
At the moment, both retail and professional traders are showing signs of confidence according to the stablecoin premium and BTC futures metrics. Consequently, the odds favor a continuation of the rally because the absence of a price correction often marks bull markets despite the presence of bearish events, especially regulatory ones.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, readers should do their own research when making a decision.
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