Crypto Market Momentum Halts as Traders Await Outcomes of Recent Regulatory Actions

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Cryptocurrency markets have been trading in an unusually tight 5% range since March 17, as conflicting forces continue to pressure the sector. As a result, over the past seven days, the total market capitalization has increased by 3.8%, mainly due to the 3.6% rise in the price of Bitcoin (BTC) and the 5% gain of Ether ( ETH).

Total crypto market capitalization in USD, 12 hours. Source: Trading View

On March 27, the US Commodity Futures Trading Commission sued Binance and Changpeng “CZ” Zhao for allegedly violating trading and derivatives rules, which increased regulatory uncertainty. According to the lawsuit, Binance provided access to leverage to customers trading in the spot and futures markets.

The announcement came just five days after Coinbase received a Wells notice from the U.S. Securities and Exchange Commission, which could target the exchange’s staking program, listed digital assets, wallet, and Coinbase Prime services. .

Similar actions have also occurred outside the United States, with Japan’s Financial Services Agency (FSA) announcing on March 31 that several foreign cryptocurrency exchanges, including Binance, Bybit, MEXC Global and Bitget, had operated in the country without proper registration, in violation of the law laws of the country.

The sideways trend that began in mid-March has repeatedly tested the crypto market’s $1.14 trillion market cap support. The move suggests investors are hesitant to place new bets until more information about the lawsuits against Binance and Coinbase becomes available.

Risky markets benefited from inflationary pressures

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 impact of Credit Suisse and its subsequent sale to UBS. Equities and commodities have benefited from the fact that traditional financial investors are looking for alternatives to hedge against inflation.

Equities and commodities have benefited from the fact that traditional financial investors are looking for alternatives to hedge against inflation. Since March 15, the S&P 500 index has risen 6.6%, gold 4.6% and oil prices 18.6%. As a result, there is a compelling case for an uptrend and downtrend in the side channel, which currently limits the crypto’s total capitalization to $1.2 trillion.

Derivatives show mixed trends, but no use of excessive leverage

Perpetual contracts, also known as reverse swaps, have an embedded rate that is typically charged every eight hours. Exchanges use these fees to avoid currency risk imbalances.

A positive funding rate indicates that longs (buyers) require more leverage. However, the opposite situation occurs when the shorts (shorts) require additional leverage, causing the funding rate to become negative.

Perpetual futures accumulated the 7-day funding rate on April 3. Source: Coinglass

The seven-day funding rate for Bitcoin and Ether was neutral, indicating balanced demand for leveraged longs (buyers) and shorts (sellers) using perpetual futures.

Traders can gauge market sentiment by measuring whether more activity is going through buy (call) options or put (put) options. Generally speaking, call options are used for bullish strategies, while put options are used for bearish strategies.

A put-call ratio of 0.70 indicates that the put option open interest lags the most bullish calls and is therefore bullish. On the other hand, an indicator at 1.40 favors put options, which can be considered bearish.

Put-call ratio of BTC options volume. Source: Laevitas

The put-to-call ratio for Bitcoin options volume hit its highest level since March 9, indicating excess demand for neutral to bearish puts. This is the reverse of what happened on April 1, when call options were more in demand.

Related: Unraveling the Hyperbole: Are US-Based Crypto Firms Really “Strangled”?

Traders Rate Low Chances of a Break Above $1.2 Trillion

The market rates higher downside probabilities in the derivatives market. However, given the balanced demand in the futures markets, traders are hesitant to place additional bets until the actions of regulators are clearer. It is unclear whether the total market capitalization will be able to break through the $1.2 trillion barrier, but professional traders are not currently betting on it.

From a derivatives market perspective, traders value higher downside risks. However, given the balanced demand in the futures markets, investors are uncomfortable placing further bets until they have a clearer picture of regulators’ actions.

Uncertainty exists 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.

The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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