Cryptocurrency markets have traded within an unusually tight 5% range since March 17 as conflicting forces continue to pressure the sector. Consequently, in the last 7 days, the total market capitalization gained 3.8%, mainly driven by the rise in the price of Bitcoin (BTC) by 3.6% and Ether (ETH) by 5%.
On March 27, the Commodity Futures Trading Commission sued Binance and Changpeng Zhao for allegedly infringing trading and derivatives rules, adding to regulatory uncertainty. According to the lawsuit, Binance provided access to leveraged trading to US clients who speculated in the spot and futures markets.
The announcement came just five days after Coinbase received a Wells Notice from the United States Securities and Exchange Commission (SEC), which could affect the exchange’s staking program, listed digital assets, its wallet solution, and Coinbase Prime services.
Similar moves occurred outside the US, after Japan’s Financial Services Agency (FSA) announced on March 31 that several foreign cryptocurrency exchanges, including Binance, Bybit, MEXC Global, and Bitget, had been operating. in the country without proper registration, in violation of the laws of the country.
The flat trend that began in mid-March has repeatedly tested the $1.14 trillion market cap support of the cryptocurrency market. The move suggests that investors are hesitant to place further bets until more information is available about the lawsuits against Binance and Coinbase.
Risk markets benefited from inflationary pressure
The global banking crisis forced the Federal Reserve to use two different emergency lending programs. As a result, the Swiss National Bank provided more than $100 billion in liquidity to absorb the shock of Credit Suisse and its subsequent sale to UBS. Stocks and commodities have benefited as traditional finance investors look for alternatives to hedge against inflation.
Stocks and commodities have benefited as traditional finance investors look for alternatives to hedge against inflation. Since March 15, the S&P 500 index has risen 6.6%, gold 4.6% and the price of oil 18.6%. Consequently, there are strong arguments for both an uptrend and a downtrend within the side channel that currently caps total cryptocurrency capitalization at $1.2 trillion.
Derivatives show mixed trends, but not excessive use of leverage
Perpetual contracts, also known as reverse swaps, have an implicit fee that is typically charged every eight hours. Exchanges use this rate to avoid imbalances in foreign exchange risk.
A positive funding rate indicates that the longs (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) demand more leverage, causing the funding rate to turn negative.
The seven-day funding rate for Bitcoin and Ether was neutral, indicating balanced demand for longs (buyers) and shorts (sellers) leveraged through perpetual futures contracts.
Traders can gauge market sentiment by measuring whether there is more activity through call or put options. In general, call options are used for bullish strategies, while put options are used for bearish ones.
A ratio of 0.70 between puts and calls indicates that open interest on puts lags the most bullish calls and is therefore positive. On the contrary, an indicator of 1.40 favors put options, which can be considered negative.
Bitcoin’s put to call volume ratio reached its highest level since March 9, indicating excess demand for neutral to bearish put options. This is the opposite of what happened on April 1, when there was more demand for call options.
The low probabilities of exceeding USD 1.2 trillion
The market is pricing in higher probabilities of falls in the derivatives market. However, given the balanced demand in the futures markets, traders are hesitant to place more bets until further action by regulators is clearer. It is unclear if the total market capitalization will be able to break the $1.2 trillion barrier, but professional traders are not currently betting on it.
From a derivatives market standpoint, traders are pricing in higher downside probabilities. However, given the balanced demand in the futures markets, investors are not comfortable placing more bets until there is a clearer picture of the regulators’ actions.
There is uncertainty as to whether the total market capitalization will be able to break the $1.2 trillion barrier, but professional traders are not currently betting on this outcome.
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