Bitcoin (BTC) price topped $25,000 on Feb. 21, racking up a 53% year-to-date gain, so it was logical to expect the rally to continue after US retail sales data. US last week will be well above the market consensus. This fueled investor hope for a smooth landing and possible aversion to a recession in the US economy.
The pinnacle of success for the US Federal Reserve’s strategy would be to raise interest rates and reduce its $9 trillion balance sheet without significantly damaging the world economy in the process. If that miracle occurs, the outcome would benefit risk assets including stocks, commodities and Bitcoin.
Unfortunately, the cryptocurrency markets took a hit following the rejection of the $25,200 level and the price of Bitcoin falling by 10% between February 21-24. Regulatory pressure, mainly from the US, partly explains investors’ reason for worsening market conditions.
In an interview with New York Magazine on February 23, Securities and Exchange Commission (SEC) Chairman Gary Gensler stated that “everything that is not Bitcoin” is potentially an instrument of value (contract of value). investment) and falls within the jurisdiction of the agency. However, multiple lawyers and political analysts commented that Gensler’s opinion “is not the law.” Therefore, the SEC has no authority to regulate cryptocurrencies unless it proves its case in court.
Additionally, at a G20 meeting, US Secretary Janet Yellen stressed the importance of putting in place a strong regulatory framework for cryptocurrencies. Yellen’s remarks on February 25 came after International Monetary Fund (IMF) managing director Kristalina Georgieva said that “if regulation fails,” the full ban “should not be ruled out.”
Let’s take a look at Bitcoin derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Demand for stablecoin in Asia stagnates
Traders should look to the USD Coin (USDC) premium to gauge demand for cryptocurrencies in Asia. The index measures the difference between stablecoin trades in China and the US dollar.
Excessive buying demand for cryptocurrencies can push the indicator above fair value at 104%. On the other hand, the stablecoin market supply is flooded during bear markets, causing a discount of 4% or more.
After peaking at 4% at the end of January, the USDC premium indicator in Asian markets has fallen to a neutral 2%. Since then, the gauge has stabilized at a modest 2.5% premium, which should be read as positive given the recent regulatory FUD.
Bitcoin quarterly futures are the instruments of choice for whales and arbitrage tables. Due to their settlement date and the difference in price to spot markets, they can seem difficult for retail traders. However, its most notable advantage is the absence of a fluctuating financing rate.
These fixed-month contracts typically trade at a slight premium to the spot markets, indicating sellers are asking for more money to retain settlement longer. Consequently, futures markets should trade at a 5-10% annualized premium over healthy markets. This situation is known as contango and is not unique to cryptocurrency markets.
The chart shows traders flirting with neutral sentiment between February 19-24 as Bitcoin price held above $23,750. However, the indicator failed to enter the neutral to bearish 0-5% zone as regulatory uncertainty added, especially after Gensler’s remarks on February 23. As a result, it became clear that professional traders were not comfortable with a Bitcoin price breakout above $25,000.
Weak economic data shifts control to the bulls
Since February 25, the Bitcoin price has risen 4.5%, indicating that the impact of regulatory news flow has been limited. More importantly, the global stock market reacted positively on February 27 after the US Department of Commerce reported that durable goods orders were down 4.5% in January from the previous month. These data added pressure for the US Fed to reduce its interest rate hike program ahead of schedule.
With Bitcoin’s 50-day correlation to S&P 500 futures currently sitting at 83%, cryptocurrency traders are more inclined to support stronger risk asset prices throughout the week. A correlation indicator above 70% indicates that both assets move in tandem, which means that the macroeconomic scenario is likely to play a key role in determining the overall trend.
Unless there is added pressure from regulators or conflicting economic data, the odds favor Bitcoin bulls considering BTC futures and Asian stablecoin metrics.
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