Bitcoin (BTC) rose 8.4% between May 15 and 16, peaking at 66,750.

Bitcoin (BTC) rose 8.4% between May 15 and 16, peaking at $66,750, a three-week high. Although Bitcoin has stabilized near $65,000, this price change represents a turnaround after Bitcoin retested the $57,000 support on May 1. However, these gains were not enough to instill an upside by Bitcoin derivatives metrics.

What is the reason behind Bitcoin’s poor performance?

Part of Bitcoin investors’ disappointment can be attributed to the strong performance of traditional assets. The S&P 500 rose to an all-time high on May 16, with a total gain of 6% over 15 days. Meanwhile, gold has risen 4% in the same period and is currently trading at $2,375, less than 1% off its all-time high closing price.

Bitcoin needs to rise another 12% to regain its highest closing price of $73,084. This feat seems unlikely given that the main driver of the price, inflows of spot Bitcoin exchange-traded funds (ETFs), has faded. These ETFs have captured $12.1 billion in investments since their launch in January, but have remained stagnant over the past two months.

The deteriorating regulatory environment, especially in the US, may explain why investors are hesitant to buy Bitcoin using derivatives despite recent price strength. On May 6, Rustin Behnam, Chairman of the US Commodity Futures Trading Commission (CFTC), warned that more enforcement actions will be taken against the cryptocurrency ecosystem over the next six months to two years.

Additionally, US regulators have several cases pending against cryptocurrency companies, including Binance, Coinbase, and Kraken. Recent enforcement actions against privacy-focused services and brokers like Robinhood have also contributed to increased uncertainty. The lack of a clear legislative framework and judicial clarity limits the appetite of Bitcoin investors.

Furthermore, cryptocurrencies received negative media attention after 193 suspects were arrested for money laundering using stablecoins in China. Authorities claimed on May 15 that these individuals transferred $1.9 billion using stablecoins to smuggle items and investments abroad. Additionally, on May 1, two US Senators requested an investigation into the use of cryptocurrencies to fund terrorist organizations in the Middle East.

Bitcoin derivatives flat despite rally above $66,000

To understand whether whale sentiment has been affected by the deteriorating regulatory environment, one should analyze data from the Bitcoin futures markets. The long-to-short ratio of top traders consolidates their positions across spot, perpetual and quarterly futures, providing a comprehensive view of how bullish or bearish these traders are.

Top traders on BTC exchanges long to short ratio. Source: Coinglas

On OKX, the current buy-to-sell ratio is 0.96, which indicates that bulls and bears have approximately equal positions. However, this is a less optimistic stance compared to May 14, when the index reached 1.25, favoring long trades. Likewise, senior traders on Binance are now less optimistic compared to May 14, with the buy-to-sell ratio falling to 1.14 from 1.31.

Related: Demand for Bitcoin whales is accelerating, but price rise may “take weeks” – analysts

To assess the appetite of retail traders, one should focus on perpetual futures contracts, also known as inverse swaps. These contracts include a built-in rate that is recalculated every eight hours to compensate for imbalances in leverage demand. Essentially, a negative rate indicates a preference for leverage used by the seller(s).

Bitcoin (Btc) Rose 8.4% Between May 15 And 16, Peaking At 66,750.
The average funding rate for perpetual Bitcoin futures is 8 hours. Source: Coinglas

Notice how Bitcoin’s funding rate has remained below 0.01% over the past month, indicating balanced demand between long and short trades. By derivatives metrics, even the recent rise above $66,000 was not able to instill confidence in retail traders.

In essence, investors are not confident in placing bullish bets as regulatory uncertainty persists. On the bright side, if Bitcoin eventually breaks above $68,000, most traders will be surprised, which could fuel the rally as there is room for upside leverage.

This article does not contain investment advice or recommendations. Every investment and trading move involves risks, and readers should conduct their own research when making a decision.

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