The cryptocurrency market has been trading in a 7% range for the past 14 days, which is unusually tight. In other words, investors don’t want to spend more money until there is more regulatory clarity, especially in the US.
Over the past seven days, the total market capitalization of cryptocurrencies fell 1% to $1.2 trillion, mainly due to a 1.1% drop in Bitcoin, a 0.2% drop in Ethereum, and a 1.4% drop in BNB.
Total cryptocurrency market capitalization in USD, 12 hours | Source: TradingView
The previous market value range of $1.16 trillion to $1.22 trillion existed during the 12-day period from March 29 to April 10. And what drives market volatility: Regulatory uncertainty reduces market capitalization – Banking crisis pushes up prices.
SEC’s Crypto Crackdown Could Backfire
The Coinbase exchange has been battling the U.S. Securities and Exchange Commission (SEC) over a clear rulemaking request that underscores the need and urgency of the action in cryptocurrency trading. On March 22, Coinbase received a “legal threat” notice of a “possible securities law violation” from Wells.
However, the latest decision could benefit Coinbase, as the court has directed the SEC to clarify securities law rules that apply to cryptocurrencies within 10 days.
On the other hand, the banking crisis does not appear to have subsided after bank PacWest Bancorp announced it was considering a takeover. The financial institution has $40 billion in assets, though about 80% of its loan book is in commercial real estate and residential mortgages — an area hit hard by rising interest rates.
The recent sideways trend in cryptocurrencies shows that investors are hesitant to spend money until it becomes clearer whether the U.S. Treasury Department will continue to inject liquidity to prevent a banking crisis. This is inherently good for inflation and creates a positive incentive for scarce assets.
Demand for BTC and ETH derivatives plummets
Perpetual contracts, also known as inverse swaps, have a fixed rate, usually billed every 8 hours. Exchanges will use this fee to avoid trade risk imbalances.
A positive funding ratio indicates that bulls (buyers) need more leverage. However, the opposite occurs when shorts (sellers) demand additional leverage, causing the funding rate to become negative.
7-Day Funding Rate May 4 Perpetual Futures | Source: Coinglass
The 7-day funding rate for Bitcoin and Ethereum is neutral, indicating the need to strike a balance between long and short perpetual futures. BNB is the only exception, as shorts are paying 1.4% weekly to maintain open interest, indicating a bearish bias.
To rule out external factors that may only affect the futures market, traders can gauge market sentiment by determining whether there is significant activity through long or short orders. . Typically, these calls are used for bullish strategies and puts are used for bearish strategies.
Option expiration can have a significant impact on the market, especially if a large number of contracts are involved. When options contracts expire, holders of those contracts can choose to exercise their rights, creating buying or selling pressure on the underlying asset. This could increase volatility in bitcoin prices, leading bulls to gain a $575 million advantage at the most recent expiry on April 28.
A call ratio of 0.7 indicates that the open interest (OI) of puts is slower than the open interest (OI) of more bullish calls, so the price will rise. Conversely, the 1.4 indicator favors put options, which can be considered bearish.
Source: Laevitas.ch
The put-to-Bitcoin option volume ratio has been below 0.9 since April 26, indicating a higher preference for neutral bullish calls. What’s more, even with a brief correction to $27,700 on May 1, the demand for hedging options did not increase significantly.
Traders see low odds over $1.2 trillion
Options markets show that whales and market makers are reluctant to take protective measures even after Bitcoin’s 7.8% price drop on May 1. However, with balancing demand in the futures market, traders appeared reluctant to place further bets until it became clear whether the U.S. Treasury Department would continue to bail out the troubled regional banking sector.
Whether the total market capitalization will break the $1.22 trillion mark is unclear. But one thing is for sure: Professional traders are not betting on a plunge in cryptocurrency prices as demand for hedging has cooled.
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As reported by Cointelegraph
