Bitcoin, Ethereum bears regain control Two derivative metrics suggest

[ad_1]

A bearish market structure has put pressure on cryptocurrency prices over the past six weeks, driving total market capitalization to its lowest level in two months at $1.13 trillion. According to two derived metrics, crypto bulls will struggle to break the downtrend, although analysis of a shorter time frame provides a neutral view with Bitcoin (BTC), Ether (ETH), and BNB, on average, gaining 0 .3% between May 12 and May 19.

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

Note that the descending wedge formation initiated in mid-April could last into July, indicating that a potential breakout to the upside would require additional effort from the bulls.

In addition, there is the looming US debt ceiling stalemate as the US Treasury is rapidly running out of cash.

Even though the majority of investors believe the Biden administration will be able to strike a deal before the actual debt default, no one can rule out the possibility of a government shutdown and subsequent default.

Gold or stablecoins as a safe haven?

Even gold, once considered the safest asset class in the world, has not been immune to the recent correction, with the precious metal falling from $2,050 on May 4 to the current level. of $1,980.

Related: Bitcoin, Gold, and the Debt Ceiling Is Something Gotta Give?

Circle, the company behind the USDC stablecoin, dumped $8.7 billion in Treasuries maturing in more than 30 days for short-term bonds and secured loans at banking giants such as Goldman Sachs and the Royal Bank of Canada.

According to Markets Insider, a representative from Circle 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.

Stablecoin DAI, operated by decentralized organization MakerDAO, in March approved an increase in its portfolio holdings of US Treasuries to $1.25 billion to take advantage of the current yield environment and generate additional revenue. .

Derivatives markets show no signs of falling

Perpetual contracts, also known as reverse swaps, have an embedded rate that is typically charged every eight hours.

A positive funding rate indicates that longs (buyers) require more leverage. Yet, 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 May 19. Source: Coinglass

The seven-day funding rate for BTC and ETH was neutral, indicating balanced demand for leveraged longs (buyers) and shorts (sellers) using perpetual futures. Curiously, even Litecoin (LTC) showed no excessive long demand after a weekly rally of 14.5%.

To rule out externalities that might have impacted futures markets only, traders can gauge market sentiment by measuring whether more activity is going through call options or put options. .

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

Expiring options can add volatility to Bitcoin price, resulting in an $80 million upside for bears in the last May 19 expiry.

A put-call ratio of 0.70 indicates that open interest on put options 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.

The put-to-call ratio for Bitcoin options volume has been below 1.0 for the past two weeks, indicating a higher preference for neutral to bullish calls. More importantly, even though Bitcoin briefly corrected to $26,800 on May 12, there was no significant increase in demand for protective puts.

Glass half full or investors preparing for the worst?

The options market is showing that whales and market makers are unwilling to take protective puts even after Bitcoin crashed 8.3% between May 10-12.

However, given balanced demand in the futures markets, traders seem hesitant to place additional bets until there is more clarity on the US debt standoff.

There are less than two weeks until June 1, when the US Treasury Department has warned that the federal government may be unable to pay its debts.

Related: US Debt Ceiling Crisis: Bullish or Bearish for Bitcoin?

It is unclear whether the total market capitalization will be able to break with the formation of the descending wedge. Optimistically, professional traders do not use derivatives to bet on a doomsday scenario.

On the other hand, there seems to be no reason for the bulls to take the plunge and bet on a quick recovery in the crypto market given the uncertainty in the macro environment. So, at the end of the day, bears are in a comfortable position by derivatives metrics.

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.

[ad_2]