A bear market structure has been putting pressure on cryptocurrency prices for the past six weeks.taking total market capitalization to its lowest level in two months at $1.13 trillion. According to two derivatives metrics, cryptocurrency bulls will have a hard time breaking the downtrendalthough shorter time-frame analysis provides a neutral view with bitcoin (BTC), Ether (ETH) and BNB, on average, gaining 0.3% between May 12-19.
Notice that falling wedge formation started in mid-April could last until Julyindicating that an eventual breakout would require additional effort from the bulls.
Besides, there is the looming US debt ceiling stalemate, as the US Treasury is rapidly running out of liquidity.
Although most investors believe that the Biden administration will be able to reach an agreement before the actual default of its debt, no one can exclude the possibility of a government shutdown and consequent default.
Gold or stablecoins as a safe haven?
Not even gold, which used to be considered the world’s safest asset class, has been immune to the recent correction.as the precious metal fell from $2,050 on May 4 to the current level of $1,980.
Circle, the company behind the USDC stablecoin, has dumped $8.7 billion in Treasury bonds with maturities greater than 30 days for short-term bonds and collateralized loans at banking giants like Goldman Sachs and Royal Bank of Canada.
According to Markets Insider, a Circle representative stated that:
“The inclusion of these highly liquid assets also provides additional protection for the USDC reserve in the unlikely event of a US debt default.”
The stablecoin DAI, managed by the decentralized organization MakerDAO, approved in March an increase in US Treasury bond holdings in its portfolio to $1.25 billion. to “take advantage of the current yield environment and generate more income.”
Derivatives markets show no bearish signs
Perpetual contracts, also known as reverse swaps, have an implicit interest rate that is typically charged every eight hours.
A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) require more leveragecausing the funding rate to turn negative.
The seven-day funding rate for BTC and ETH was neutral, indicating balanced demand from leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts.. Interestingly, not even Litecoin (LTC) showed excessive long demand after a 14.5% weekly rally.
To exclude externalities that might have affected only the futures markets, Traders can gauge market sentiment by measuring whether there is more activity through call or put options..
Option expiration can add volatility to bitcoin pricewhich translated into an $80 million advantage for the bears in the last expiration of May 19.
A ratio of 0.70 between put options and call options indicates that the open interest of put options lags behind the more bullish call options. Conversely, an indicator of 1.40 favors put options, which can be considered bearish.
The put to call ratio for bitcoin option volume has been below 1.0 for the past two weeks, indicating a greater preference for neutral to bullish call options. And what is more important, even when the bitcoin price briefly corrected lower to $26,800 on May 12, there was no significant increase in demand for protective puts.
Is the glass half full or are investors preparing for the worst?
The options market shows whales and market makers unwilling to take protective puts even after bitcoin plunged 8.3% on May 10-12.
However, Given balanced demand in the futures markets, some traders are hesitant to place additional bets until there is more clarity on the US debt stalemate..
There are less than two weeks left until June 1, when the US Treasury Department has warned that the federal government may be unable to pay its debts.
It is not clear if the total market capitalization will be able to break the falling wedge formation. From an optimistic perspective, professional traders are not using derivatives to bet on a doomsday scenario..
Besides, There seems to be no reason for bulls to jump in and bet on a quick recovery in the cryptocurrency market, given the uncertain macroeconomic environment.. So ultimately the bears are in a comfortable place based on derivatives metrics.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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