Over the past 14 days, cryptocurrency markets have been trading in an unusually tight range of 7.1%. In other words, investors are reluctant to place new bets until there is additional regulatory clarity, particularly in the United States.
Total crypto market capitalization fell 1% to $1.2 trillion in the seven days ending May 4, primarily due to Bitcoin
BTC
Tickers down
$29,046
1.1% price drop, Ether
ETH
Tickers down
$1,919
BNB lost 0.2%
B.N.B
Tickers down
$325
Trade was down 1.4%.
Total Crypto Market Cap in USD, 12-Hour. Source: TradingView
Note that the exact same $1.16 trillion–$1.22 trillion market capitalization range existed earlier for the 12 days between March 29 and April 10. Conflicting forces: Regulatory uncertainty and possibly a banking crisis pushing up prices. Risk appetite on both sides.
The SEC’s crypto crackdown could backfire
Coinbase exchange, for example, is fighting with the US Securities and Exchange Commission over the need for clearer rules for trading digital assets. The stock rose after Wells handed over a “legal threat” notice to the exchange on March 22 for “possible violations of securities laws.”
However, the latest decision is in Coinbase’s favor as the court directed the SEC to clarify security rules for digital assets within 10 days.
On the other hand, the banking crisis appears to have not faded after lender PacWest Bancorp reported it was considering a buyout. The regional financial institution has $40 billion in assets, although 80% of its loan book is devoted to commercial real estate and residential mortgages — a sector hit hard by rising interest rates.
The recent crypto sideways trend suggests that investors are hesitant to place new bets until there is more clarity on whether the US Treasury will continue to inject liquidity to control inflation and a banking crisis that is fueling the momentum in favor of scarce assets.
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BTC and ETH derivatives show muted demand from bears
Perpetual contracts, also known as inverse swaps, have an embedded rate that is typically charged every eight hours. Exchanges use these fees to avoid exchange risk imbalances.
A positive funding rate indicates that longs (buyers) require more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to become negative.
Perpetual futures aggregated the 7-day funding rate on May 4. Source: Coinglass
The seven-day funding rate for Bitcoin and Ether was neutral, indicating balanced demand from leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts. BNB is the only exception, as shorts pay 1.4% per week to keep their positions open.
Traders can gauge market sentiment by measuring whether more activity is coming through call (buy) options or put (sell) options to eliminate external factors that may only affect futures markets. Generally speaking, call options are used for bullish strategies, while put options are used for bearish ones.
Expiration of options can have a significant impact on the market, especially if a large number of contracts are involved. When option contracts expire, holders of these contracts may choose to exercise their rights, which can lead to buying or selling pressure on the underlying asset. This could lead to volatility in the price of Bitcoin, which gave bulls a $575-million gain in the close on April 28.
A put-to-call ratio of 0.70 indicates that put option open interest lags more bullish calls and is therefore bullish. Conversely, the 1.40 indicator is in favor of put options, which can be considered bearish.
BTC options volume put-to-call ratio. Source: Laevitas.ch
The put-to-call ratio for Bitcoin options volume has been below 0.90 since April 26, indicating a high preference for neutral-to-bullish call options. More importantly, even when Bitcoin fell to $27,700 on May 1, there was no significant increase in demand for protected put options.
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Traders with low probability of a break above $1.2 trillion
On May 1 Bir
