The cryptocurrency market has been under pressure due to a bearish market structure for the past six weeks, causing the total market capitalization to drop to $1.13 trillion, the lowest level in two months. According to two derivative metrics, breaking the downtrend will be challenging for crypto bulls, even though Bitcoin (BTC), Ether (ETH), and Binance Coin (BNB) gained an average of 0.3% between May 12 and May 19. The descending wedge formation initiated in mid-April could last until July, indicating that a break to the upside requires extra effort from the bulls. Additionally, the impending US debt ceiling standoff may cause further trouble, as the US Treasury is running out of cash.
Circle, the firm behind the USDC stablecoin, has ditched $8.7 billion in Treasuries maturing for longer than 30 days for short-term bonds and collateralized loans at Goldman Sachs and Royal Bank of Canada. A representative from Circle stated 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”. The stablecoin DAI, managed by MakerDAO, approved an increase in its portfolio holdings of US Treasuries to $1.25 billion to “generate further revenue”.
Perpetual contracts, also known as inverse swaps, have an embedded rate charged every eight hours. A positive funding rate indicates that longs (buyers) demand more leverage, while the opposite happens when shorts (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 from leveraged longs (buyers) and shorts (sellers), using perpetual futures contracts.
The expiration of options can add volatility to Bitcoin’s price, which resulted in an $80-million advantage for bears in the latest May 19 expiry. Bitcoin options volume put-to-call ratio indicates that put option open interest lags the more bullish calls and is therefore bullish. The put-to-call ratio for Bitcoin options volume has been below 1.0 for the past couple of weeks, indicating a higher preference for neutral-to-bullish calls. However, traders appear hesitant to place additional bets until there’s clarity on the US debt standoff.
From a positive perspective, professional traders are not using derivatives to bet on a catastrophic scenario. However, there seems to be no rationale for the bulls to place bets on a speedy crypto market recovery given the uncertainty in the macroeconomic environment. Ultimately, bears are in a comfortable position according to derivative metrics.
It’s uncertain whether the total market capitalization will break from the descending wedge formation. This article does not contain investment advice, and readers should conduct their own research when making any decision.