Bitcoin and Ethereum bears are back in control – two derivative metrics suggest

The bear market structure has been pressuring cryptocurrency prices over the past six weeks, pushing the total market cap to a two-month low of $1.13 trillion. By derivative metrics, cryptocurrency bulls will find it difficult to break out of the downtrend, though shorter time frame analysis provides a neutral view with Bitcoin (BTC), Ether (ETH) and BNB, on average, gaining 0.3% between 12 May. and May 19th.

Total cryptocurrency market capitalization in USD, 12-hour period. Source: TradingView

Note that the falling wedge formation that started in mid-April may continue until July, which indicates that the final break to the upside requires additional effort from the buyers.

Moreover, there is an imminent confrontation of the US debt ceiling, as the US Treasury is rapidly running out of liquidity.

Even if the majority of investors believe the Biden administration will be able to strike a deal before an actual default on its debt, no one can rule out the possibility of a government shutdown and later default.

Gold or stablecoins as a safe haven?

Even gold, which was considered one of the safest asset classes in the world, was not immune from the recent correction, as the precious metal traded from $2,050 on May 4 to the current $1,980 level.

Related: Bitcoin, Gold, and the Debt Ceiling – Should Something Give?

Circle, the company behind the USDC stablecoin, dumped $8.7 billion in Treasury notes due in more than 30 days for short-term notes and secured loans at banking giants like Goldman Sachs and the Royal Bank of Canada.

According to Markets Insider, a department representative stated that:

“The listing of these highly liquid assets also provides additional USDC reserve protection in the unlikely event of a US debt default.”

The DAI stablecoin, operated by decentralized organization MakerDAO, agreed in March to increase its holdings of US Treasuries to $1.25 billion “to take advantage of the current yield environment and generate more revenue.”

Derivatives markets are not showing any bearish signs

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

A positive funding ratio indicates that long contracts (buyers) require more leverage. However, the opposite situation occurs when short positions (sellers) require additional leverage, causing the financing rate to turn negative.

Perpetual futures contracts accumulated at a 7-day funding rate on May 19. Source: Coinglass

The seven-day funding rate for BTC and ETH was neutral, indicating a balanced demand from leveraged longs (buyers) and shorts (sellers) using perpetual futures. Curiously, even Litecoin (LTC) did not display excessive long demand after a weekly rally of 14.5%.

To rule out external factors that may only have an impact on the futures markets, traders can gauge market sentiment by gauging whether more activity is going through with buying (going long) or selling (selling) options.

BTC Options Volume Buy-to-Buy Ratio. Source:

The expiration of options can increase the volatility of the Bitcoin price, resulting in an advantage of $80 million for the bears on the latest expiration date of May 19.

A ratio of 0.70 to long indicates that the call option’s open interest lags bullish calls and is therefore bullish. In contrast, the indicator 1.40 favors selling options, which can be considered bearish.

The buy-to-buy ratio for Bitcoin options volume has been less than 1.0 over the past two weeks, indicating a higher preference for neutral-to-bullish put options. More importantly, even as Bitcoin briefly corrected to $26,800 on May 12, there was no significant increase in demand for hedge options.

The glass is half full, or are investors preparing for the worst?

The options market shows the unwillingness of whales and market makers to take precautionary measures even after Bitcoin crashed by 8.3% between May 10th and May 12th.

However, given the balanced demand in the futures markets, traders seem reluctant to place additional bets until there is more clarity on the US debt crisis.

Less than two weeks left until June 1, when the US Treasury Department warned that the federal government may be unable to pay its debts.

Related: US Debt Ceiling Crisis: Bullish or Bearish for Bitcoin?

It is unclear whether the overall market cap will be able to break out of the falling wedge formation. From an optimistic perspective, professional traders do not use derivatives to bet on a catastrophic scenario.

On the other hand, there seems to be no logical reason for the bulls to jump in aggressively and bet on a quick recovery of the cryptocurrency market given the uncertainty in the macroeconomic environment. So, in the end, bears are in a comfortable place as measured by derivatives.

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

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