Bitcoin, Ethereum Bears Are Back In Control – Two Derivatives Metrics Suggest

A bearish market structure has been putting pressure on cryptocurrency prices over the past six weeks, bringing the total market capitalization to a two-month low of $1.13 trillion. Crypto bulls will have a tough time breaking the downtrend, according to two derivatives metrics, even though analysis of a smaller time frame offers a neutral view with bitcoin (BTC), ether (ETH) and BNB averaging higher since May 12. receiving the middle 0.3%. and 19 May.

Note that the descending wedge formed in mid-April could last until July, indicating that a final break to the upside will require additional effort from the bulls.

Furthermore, there is an impending US debt ceiling impasse, as the US Treasury is quickly running out of cash.

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

Gold as a safe haven or stablecoin?

Not even gold, which was considered the world’s safest asset class, has been immune to the recent correction, as the precious metal has fallen from $2,050 on May 4 to trade at the current level of $1,980.

Related: Bitcoin, Gold and the Debt Limit – Do Anything Give?

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

According to Markets Insider, a Circle representative where did it go He:

“The inclusion of these highly liquid assets also provides additional protection for USDC reserves in the unlikely event of a US debt default.”

The stablecoin DAI, managed by the decentralized organization MakerDAO, received approval in March to increase its portfolio holdings of the US Treasury by $1.25 billion in order to “take advantage of the current yield environment and generate further revenue.”

Derivatives market shows no signs of slowing down

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

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

The seven-day funding rate for BTC and ETH was neutral, indicating balanced demand using perpetual futures contracts from leveraged longs (buyers) and shorts (sellers). Interestingly, Litecoin (LTC) did not show any extreme long demand even after a 14.5% weekly rally.

To exclude externalities that may affect the futures markets as a whole, traders can gauge market sentiment by measuring whether more activity is occurring through call (buy) options or put (sell) options. Is.

Options expiration could add volatility to the price of bitcoin, resulting in an $80 million profit for bears in the latest expiration on May 19.

A 0.70 put-to-call ratio indicates that put option open interest lags behind more bullish calls and is, therefore, bullish. Conversely, a 1.40 indicator favors the put option, which can be considered bearish.

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

Is the Glass Half Full, or Are Investors Preparing for the Worst?

Even after bitcoin fell 8.3% between May 10 and May 12, the options market shows that whales and market makers are unwilling to take protective puts.

However, given the balanced demand on the futures markets, traders are reluctant to take additional bets till there is more clarity on the US debt default.

Less than two weeks remain until June 1, when the US Treasury Department warns that the federal government may be unable to service its debt.

Connected: US Debt Limit Crisis: Bullish or Bearish for Bitcoin?

It is unclear whether the total market capitalization will be able to break out of the descending wedge formation. From an optimistic perspective, professional traders are not using derivatives to bet on catastrophic scenarios.

On the other hand, given the uncertainty in the macroeconomic environment, there seems to be no logic for th bulls to bet on an increasingly bullish crypto market recovery. So, in conclusion, the bears are in a comfortable spot according to the derivatives metrics.

This article does not constitute investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.