Bitcoin (BTC) prices initially bounced from a recent low to $ 29,000, but the overall market sentiment after a 25% drop in five days is still largely negative. Currently, the “Fear and Greed Index”, which uses volatility, volume, social metrics, Bitcoin dominance and Google development data, has fallen to its lowest level since March 2020, and at the moment there seems to be little to protect the market from further defects.
Regulation continues to burden markets
Regulation is still the main threat to markets and it is clear that investors are taking a risk-off approach to highly volatile assets. Earlier this week, during a hearing in the Senate Banking Committee, Janet Yellen, the US Treasury Secretary, called for a regulation on stablecoins and specifically addressed the TerraUSD (UST) stablecoin which went down below $ 0.70.
In addition, the United Kingdom introduced two bills aimed at introducing a cryptocurrency regulation on 10 May. The bill on financial services and markets and the bill on economic crime and corporate transparency aim to strengthen the country’s financial services industry, including supporting the “safe adoption of cryptocurrencies.”
At the same time, Google’s “Bitcoin” and “crypto” searches are approaching their lowest point in 17 months.
This indicator could partly explain why Bitcoin is 56% below the $ 69,000 all-time high because there is little public interest but let’s take a look at how professionals are positioned in derivatives markets.
Data from long to short confirm the lack of buyer demand
The long to short net ratio of top traders analyzes local positions, perpetual and forward contracts. From an analytical point of view, it gives a better understanding of whether professional traders are bullish or bearish.
There is an occasional methodological discrepancy between different exchanges, so viewers should watch for changes instead of absolute numbers.
According to the short-term indicator, Bitcoin may have risen 4% since the $ 29,000 low on May 11, but professional traders did not raise their bullish bets. For example, the ratio of OKX’s top traders dropped from 1.20 to the current 1.00 points.
In addition, Binance data show that these traders are stable near 1.10 and a similar development took place at Huobi where the ratio of top traders stood at 0.97. Data show no demand for indebtedness purchases among institutional investors despite a 5% improvement in inflation.
CME futures traders are no longer bearish
To further prove that the structure of the cryptocurrency market has deteriorated, traders should analyze CME Bitcoin futures contracts. The measurement compares long-term forward contracts and traditional market prices.
These fixed calendar contracts usually trade at a slight premium, indicating that sellers want more money to hold on to settlements for longer. As a result, one-month futures contracts should trade at a 0.5% to 1% spread in healthy markets, a condition called contango.
Whenever this indicator fades or becomes negative (backwards) it is a scary red flag because it indicates a bearish feeling.
The figure above shows how the indicator went backwards on 10 May and the transfer marks the lowest reading in two months with a negative 0.4% spread.
Data show that institutional traders are below the “neutral” benchmark measured on a future basis, which indicates a bearish market structure.
Furthermore, long-term to short data of top traders show appetite despite a rapid 4% recovery from the $ 29,000 level and the fact that BTC prices are now trading close to the same level is also a concern. Unless the derivatives show any improvement, the probability of further price adjustments remains high.
The views and opinions expressed herein are theirs alone author and do not necessarily reflect the views of Cointelegraph. Every investment and business involves risk. You should do your own research when making a decision.
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