Over the past 14 days, the cryptocurrency markets have traded within an unusually tight 7.1% range. In other words, investors are not willing to make new bets until there is more regulatory clarity, especially in the United States.
Total cryptocurrency market capitalization fell 1% to $1.2 trillion in the seven days ending May 4, primarily as a result of Bitcoin (BTC) falling 1.1%, the loss of 0.2% of Ether (BTC) and the fall of 1.4% of the BNB token.
Note that the exact same range of $1.16 to $1.22 trillion total market capitalization held earlier for twelve days, between March 29 and April 10. Conflicting forces: weighing regulatory uncertainty and the banking crisis pushing prices higher are probably the reason for the lack of risk appetite on both sides.
The SEC could backfire
The Coinbase exchange, for example, has been fighting the United States Securities and Exchange Commission (SEC) over the need for clear rules for trading digital assets. The stakes rose after the exchange received a Notice from Wells, a “legal threat” for “potential violations of securities laws,” on March 22.
However, the latest decision has been in favor of Coinbase, as a court has ordered the SEC to clarify the security rules for digital assets within ten days.
On the other hand, it seems that the banking crisis has not abated after the lender PacWest Bancorp announced that it was considering its purchase. . The regional financial entity had assets worth USD 40 billion, although around 80% of the loan portfolio is dedicated to the commercial real estate sector and residential mortgages, a sector that has been affected by the rise in interest rates.
The recent flat trend in cryptocurrencies suggests that investors are hesitant to make further bets until there is more clarity on whether the US Treasury will continue to inject liquidity to contain the banking crisis, supporting inflation and positive momentum from cryptocurrencies. scarce assets.
BTC and ETH derivatives show moderate demand from the bear side
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 leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts. BNB was the only exception, as shorts have been paying 1.4% weekly to keep their positions open, indicating a downtrend.
To exclude externalities that may have affected only the futures markets, 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.
Option expiration can have a significant impact on the market, especially if there are a large number of contracts at stake. When option contracts expire, the holders of the options can choose to exercise their rights, which can cause buying or selling pressure on the underlying asset. This may induce further volatility in the Bitcoin price, translating into a $575 million edge for bulls on the latest expiration on April 28.
A put to call ratio of 0.70 indicates that the open interest on put options is lagging behind that of more bullish call options and is therefore a positive. Conversely, a ratio of 1040 favors put options, which can be considered bearish.
Bitcoin’s put to call volume ratio has been below 0.90 since April 26, indicating a greater preference for neutral or bullish call options. More importantly, even as Bitcoin briefly corrected lower to $27,700 on May 1, there was no significant increase in demand for protective puts.
The market prices down the probabilities of surpassing the USD 1.2 trillion mark of capitalization
The options market shows whales and market makers unwilling to take protective puts even after Bitcoin plunged 7.8% on May 1. However, given balanced demand in the futures markets, traders appear hesitant to place additional bets until there is clarity on whether the US Treasury will continue to bail out the troubled regional banking sector.
It is unclear whether the total market capitalization will be able to break the $1.22 trillion barrier. But one thing is for sure: professional traders are not betting on a crash in cryptocurrency prices, as demand for protective puts has been thin.
This article does not contain investment advice or recommendations. All investing and trading involves risk, so readers should do their own research before making a decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.