After twenty days of holding support at $22,500, the price of bitcoin (BTC) finally collapsed on February 9th. Bullish traders had hopes for a sustained rally, but it was replaced by a tight trading range with resistance at $22,000.
The downtrend is even more worrisome as the S&P 500 trades near its highest level in six months, but the crypto market as a whole continues to correct.
Regulatory pressure, mostly in the United States, could explain Bitcoin’s recent weak performance. To start, on January 9, Kraken reached an agreement with the US Securities and Exchange Commission (SEC) to stop providing staking services to US customers. The crypto firm also agreed to pay $30 million in damages for non-payment of the debt, pre-judgment interest and civil penalties.
On Feb. 10, cryptocurrency lending company Nexo Capital announced that its profitable Earn Interest product for US clients will be closed in April. Nexo cited a $45 million settlement with the SEC and other regulators on Jan. 19 as the reason for stopping the service.
U.S. Securities and Exchange Commission Chairman Gary Gensler on Jan. 10 warned crypto companies to “come and follow the law”, explaining that their business models are “rife with conflict” and saying they need to “untangle” related products. Gensler said such companies are required to register with the SEC.
Another blow to cryptocurrency market sentiment came Feb. 13 after Paxos Trust Company announced it was terminating its relationship with Binance for its BUSD branded stablecoin pegged to the US dollar amid an ongoing investigation by New York State regulators. .
On Feb. 14, the US is to publish January consumer price index data that will show whether price increases have been dampened following the central bank’s rate hike. Inflation tends to be lower as this reduces pressure on the US Federal Reserve (Fed) to contain the economy. But, on the other hand, lower consumer demand is likely to put pressure on corporate earnings, which could further trigger a recession.
Let’s take a look at the performance of Bitcoin derivatives to better understand how professional traders are positioned in the current market conditions.
Demand for stablecoins in Asia is waning, but there are signs of resilience
A great way to measure overall cryptocurrency demand in Asia is the USD Coin (USDC) premium, which is the difference between peer-to-peer transactions in China and the US dollar.
Excessive buying demand tends to put pressure on the indicator above fair value at 104%, and during bear markets, the stablecoin market supply is overfilled, resulting in a discount of 4% or more.
The USDC premium is currently 2%, down from 3% on February 6, indicating a decline in demand to buy stablecoins in Asia. However, the indicator remains positive, indicating moderate buying activity from retail traders despite the 6% decline in the price of bitcoin over this period.
However, one should keep an eye on the BTC futures markets to understand how professional traders are positioned.
Futures premium moved out of the neutral-bullish range
Retail traders generally avoid quarterly futures due to their price differential with the spot markets. Meanwhile, professional traders prefer these instruments because they prevent fluctuations in funding rates in a perpetual futures contract.
YOY premium for 3-month futures should be +4% to +8% in healthy markets to cover costs and associated risks. Thus, when futures trade below this range, it is indicative of leverage buyers being unsure. This is usually a bearish indicator.
The chart shows declining momentum as the premium for Bitcoin futures dipped below the neutral threshold of 4% on February 8th. This move represents a return to the neutral bearish sentiment that prevailed until mid-January.
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Crypto traders expect further pressure from regulators
While Bitcoin’s 9% drop after the failed $24,000 resistance test on Feb. 2 seems discouraging, the overwhelming negative news flow from regulators has left professional traders risk-averse.
At the same time, the traditional market is looking for additional data before adding bullish positions. For example, investors would prefer to wait until the US Federal Reserve demonstrates confidence in the completion of the move to raise interest rates.
For now, the odds are in favor of the bears as regulatory uncertainty creates a fertile environment for fear, uncertainty and doubt — even if the news is non-bitcoin and focused on cryptocurrency exchanges and stablecoins.
The views, thoughts and opinions expressed here are those of the authors only and do not necessarily reflect or represent the views and opinions of Cryptooshala.
This article does not contain investment advice or recommendations. Every investment and trading step involves risk, and readers should do their own research when making a decision.
Credit : cointelegraph.com
