Cryptocurrencies

Cryptocurrency markets saw a 5.5% total recapitalization increase on May 15

On May 15, cryptocurrency markets saw a 5.5% increase in total capitalization following the release of inflation and retail sales data from the US. However, Ethereum (ETH) failed to take full advantage of this growing momentum. Ethereum last closed above $3,000 in five days and is 22% lower than leading cryptocurrency Bitcoin (BTC) since the start of 2024.

US macroeconomic data is supporting growth in some scarce assets

Cryptocurrency markets responded positively to US Consumer Price Index (CPI) data, which showed a 3.4% year-on-year increase in April, which was in line with market expectations. However, retail sales data released on April 15 unnerved investors as they showed stability from the previous month, against economists’ expectations of a 0.4% increase. This development has increased the likelihood that the US Federal Reserve will take measures to stimulate the economy.

Even if the US Federal Reserve decides to keep interest rates above 5.25% for the long term to control inflation, the central bank may resort to measures such as buying government securities to stimulate the money supply and reduce the discount rate at which banks lend. are taking central bank. Bank. In essence, even the hint of a continued supply of liquidity can shape economic expectations and behavior.

Contrary to expectations, weaker economic activity is often seen as an indication that more money will be sent into the system, which favors investments in scarce assets such as stocks, gold and cryptocurrencies. Ultimately, the government must issue more debt to finance these expansionary measures to stave off recession. Over time, inflation is likely to rise because of the extra money in circulation, regardless of the interest rate.

Some analysts believe that the May 23 ruling by the US Securities and Exchange Commission (SEC) on VanEck’s introduction of the Ethereum spot ETF is the main reason why Ethereum will not be able to break the $3,000 resistance level. The uncertainty surrounding this event causes traders to delay their investment decisions until the outcome becomes more certain, which makes sense. No matter how optimistic Ethereum’s long-term prospects are, the SEC rejection could lead to a short-term market correction.

Eric Balchunas, senior ETF analyst at Bloomberg, expressed doubts about the approval of the Ethereum spot ETF in 2024, given the regulator’s cautious approach to products that could be classified as securities, particularly those involving services. These uncertainties are also evident in the ether derivatives markets.

Ether derivatives markets reflect a lack of optimism

To understand how professional traders position themselves, it is necessary to study the ETH futures and options markets. In market-neutral conditions, Ethereum futures are typically priced 5% to 10% above normal spot Ethereum prices to account for the extended maturity.

The premium of two-month annual ether futures contracts to the spot price. Source: Lavitas

Currently, the Ethereum futures premium (base price) is 9%, a number that has remained stable over the past two weeks. This level indicates a general lack of enthusiasm for the decision on spot ETFs, suggesting neutral sentiment among traders.

In the options market, there is an equal balance of demand for call (buy) and put (sell) options because both types of instruments trade at the same price level. Typically, if traders expect Ethereum prices to fall, the 25% delta deviation will exceed 7%. Conversely, periods of high market excitement often result in a negative deviation of 7%.

Related to: Two brothers manipulated Ethereum protocols to steal $25 million – Department of Justice

Cryptocurrency Markets Saw A 5.5% Total Recapitalization Increase On May 15
2-month Ether options with 25% delta slope. Source: Lavitas

If bullish trading demand increases in anticipation of an immediate ETF decision, spots and market makers will likely increase prices of contracts that provide upside price protection. This will reflect their expectations of higher prices in the future and their intention to take advantage of traders’ willingness to pay more for potential profits.

While it’s hard to pin down the exact reasons why Ethereum hasn’t been able to capitalize on today’s gains in the cryptocurrency space, Ethereum investors aren’t particularly optimistic about the chances of an Ethereum ETF being approved. Additionally, other factors, such as ETH supply swelling for the first time in 18 months due to lower transaction fees, could also help keep ETH prices below $3,000.

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

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