A bear market structure has been putting pressure on cryptocurrency prices for 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 have a hard time breaking out of the downtrend, although looking at a shorter timeframe provides a neutral view with Bitcoin (BTC), Ether (ETH) and BNB, on average, gaining 0. 3% between May 12. and May 19.
Note that the falling wedge formation started in mid-April could last until July, indicating that an eventual breakout would require additional effort from the bulls.
Plus, there’s the looming showdown of the US debt ceiling, as the US Treasury is rapidly running out of cash.
Even if most investors believe the Biden administration will be able to reach an agreement before the actual default on its debt, no one can rule out the possibility of a government shutdown and subsequent default.
Gold or stablecoins as a safe haven?
Not even gold, once considered the world’s safest asset class, has been immune to the recent correction, as the precious metal traded lower from $2,050 on May 4 to the current level of $1,980. .
Related: Bitcoin, Gold, and the Debt Ceiling: Does Something Have to Give?
Circle, the company behind the USDC stablecoin, dumped $8.7 billion of Treasuries maturing in more 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 representative for Circle fixed 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, run by decentralized organization MakerDAO, approved in March an increase in holdings of its US Treasury bond portfolio to $1.25 billion to “take advantage of the current yield environment and generate more income”.
Derivatives markets show no signs of bearish trend
Perpetual contracts, also known as reverse swaps, have a built-in fee that is typically charged every eight hours.
A positive funding rate indicates that long buyers require more leverage. Still, the opposite situation occurs when short sellers require additional leverage, causing the funding rate to turn negative.
The seven-day funding rate for BTC and ETH was neutral, indicating balanced demand for leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts. Interestingly, even Litecoin (LTC) did not show excessively 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 in call options or put options.
Options expiration can add volatility to the Bitcoin price, resulting in an $80 million edge for bears at the latest expiration on May 19.
A put-to-call ratio of 0.70 indicates that the put option’s open interest is lagging behind the most bullish calls and is therefore bullish. Conversely, an indicator of 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 greater preference for neutral to bullish call options. More importantly, even as 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 shows whales and market makers unwilling to take hedge options, even after Bitcoin plunged 8.3% on May 10-12.
However, given the balanced demand in the futures markets, traders seem hesitant to place additional bets until there is more clarity on the US debt showdown.
There are less than two weeks left until June 1, when the US Treasury Department warned that the federal government might not be able to pay its debts.
Related: US Debt Ceiling Crisis: Bullish or Bearish for Bitcoin?
It is not clear if the total market capitalization will be able to break out of the falling wedge formation. From an optimistic perspective, professional traders are not using derivatives to bet on a doomsday scenario.
On the other hand, there seems to be no reason for bulls to rush in and bet on a quick recovery of the crypto market given the uncertainty in the macroeconomic environment. So ultimately the bears are in a comfortable place based on derivatives metrics.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
