A bearish market structure has been pressuring cryptocurrency prices for the past six weeks, which pushed the 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 analyzing a shorter time frame provides a neutral view with Bitcoin (BTC), Ether (ETH) and BNB, on average, gaining 0.3% between May 12th and May 19th.

Note that the descending wedge formation initiated in mid-April could last until July, indicating that an eventual bullish breakout would require additional effort from the bulls.

In addition, there is the looming U.S. debt ceiling showdown, as the U.S. Treasury is rapidly running out of cash.

Even if most investors believe that the Biden administration will be able to reach a deal before the actual default on its debt, no one can rule out the possibility of a government shutdown and subsequent default.

Are Gold or Stable Currencies a Safe Haven?

Even gold, which used to be considered the world’s safest asset class, has not been immune to the recent correction, as the precious metal traded down from $2,050 on May 4th to the current level of $1,980.

Circle, the company behind the stable coin USDC, 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 Royal Bank of Canada.

A Circle representative stated that “The inclusion of these highly liquid assets also provides additional protection for the USDC reserve in the unlikely event of a U.S. debt default.”

Stable currency DAI, managed by decentralized organization MakerDAO, approved in March an increase in holdings of its US Treasury bond portfolio to USD 1250 million to “take advantage of the current yield environment and generate more income.”

Derivatives Markets Show no Signs of Bearishness

Perpetual contracts, also known as reverse swaps, have a built-in rate that is generally charged every eight hours.

A positive funding rate indicates that long buyers demand more leverage. Yet, 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 a 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 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, which resulted in an $80 million advantage for bearish traders at the last expiration on May 19.

A put-to-call ratio of 0.70 indicates that the put option open interest lags more 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 when Bitcoin briefly corrected to $26,800 on May 12th, there was no significant increase in demand for protective put options.

On the other hand, there seems to be no reason for bulls to rush in and bet on a rapid cryptomarket recovery given the uncertainty in the macroeconomic environment. So, ultimately, the bearish are in a comfortable place according to derivative metrics.

By Marina Meza


Please enter your comment!
Please enter your name here