Regulatory uncertainty in the cryptocurrency space and lack of transparency over stablecoins. These were the topics we talked about the most in the past weeks. However, these issues caused crypto markets to trade at 10-week lows. Now everyone is wondering when this lost streak will end. Let’s see the details.
Cryptocurrency regulatory conditions worsen
The past few weeks have seen a bearish trend fueled by regulatory uncertainty. Last week, Bitcoin gained 2.5% with BTC at $26,617 and BNB at $246. XRP, on the other hand, fell 5.2% at $0.50. Also, Ethereum was trading down 0.7% from the $1,739 level. Note that the 10-week long pattern tests the support level multiple times. This indicates that bulls will have a hard time breaking out of the downtrend as regulatory conditions worsen around the world. New York-based derivatives exchange Bakkt has decided to delist Solana, Cardano and Polygon (MATIC). The reason for the deli is simple. Recent regulatory developments in the United States. The decision comes after lawsuits filed last week by the Securities and Exchange Commission (SEC) against crypto exchanges Binance and Coinbase.
More recently, on June 16, Binance has been the subject of a preliminary investigation in France since February 2022. There is an emphasis that the France-based arm of the cryptocurrency exchange has not been able to obtain a business license. On the other hand, it is among the allegations that it offers its services to French customers illegally. In addition, the exchange also lacked Know Your Customer procedures, according to regulators. On June 16, Binance announced that it was leaving the Netherlands. It also asked users to withdraw their funds as soon as possible. The decision to exit the Dutch market came after the exchange failed to obtain a virtual asset service provider (VASP) license. Despite the deteriorating crypto regulatory environment, two derivatives benchmarks suggest that the bulls are yet to throw in the towel. However, they are likely to struggle to break the bearish price formation to the upside.
Derivatives BTC, ETH show stable demand for leveraged transactions
Perpetual contracts, also known as reverse swaps, have an embedded rate that is typically charged every eight hours. A positive funding rate indicates that longs (buyers) demand more leverage. However, the opposite occurs when shorts (sellers) demand additional leverage. As a result, it causes the funding rate to turn negative.
The seven-day funding rate for cryptocurrencies BTC and ETH is neutral. Leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts show that demand is balanced. The only exception was BNB. Traders paid up to 1% per week for short-focused bets. This is explained by the added risks following the regulatory review on the Binance exchange. The Tether premium is a good indicator of China-based crypto investor demand. It measures the difference between China-based peer-to-peer transactions and US dollars. Overbought demand tends to put the indicator under its fair value of 100%. During bearish markets, Tether’s market offering is flooded. Causes a 2% or higher discount.
The Tether premium in Asian markets dropped to 99.2% after being flat since 6 June, indicating moderate discomfort. This may have been caused by the June 16 reports of Tether reserves being exposed to Chinese debt markets.
Potential market triggers
Derivative metrics have shown resilience given the strong regulatory action towards cryptocurrency exchanges. As a result, the bears have yet to prove their strength if they want to push the cryptocurrency space below $1 trillion.
Despite the most recent jump from support, any gains above $1.12 trillion in the cryptocurrency space (a 10% increase from the low of $1.02 trillion) will likely be short-lived in the next few months. So, looking at cryptocoin.com, with more than 300 days to Bitcoin’s halving, bulls are currently pinning their hopes on a Bitcoin ETF approval and/or Federal Reserve rate cut as potential bull market catalysts.
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