After twenty days of holding the $22,500 support, Bitcoin (BTC) the price was finally broken on February 9. Bullish traders had pinned their hopes on a sustained rally, but this has been replaced by a tight trading range with resistance at $22,000.
The downtrend is even more worrisome as the S&P 500 trades near its highest level in six months, but the broader crypto market continues to correct.
Regulatory pressure, mainly in the United States, may explain Bitcoin's recent lackluster performance. For starters, on January 9, the Kraken Exchange reached an agreement with the United States Securities and Exchange Commission (SEC) to stop offering staking services to U.S. clients. The cryptocurrency firm has also agreed to pay $30 million in repayment, pre-judgment interest, and civil penalties.
On Feb. 10, cryptocurrency lending firm Nexo Capital announced that its yielding Earn Interest product for US clients would be close in april. Nexo pointed to its $45 million settlement with the SEC and other regulators on January 19 as the reason for the service interruption.
US SEC Chairman Gary Gensler issued a warning to crypto companies on Jan. 10 to โgo in and comply with the law,โ explaining that their business models were โfraught with conflictโ and claiming they needed to โuntangleโ packaged products. Gensler said such companies must register with the SEC.
Another blow to crypto market sentiment came on Feb. 13 after Paxos Trust Company announced the termination of your relationship with Binance for the US dollar-pegged BUSD-branded stablecoin amid an ongoing investigation by New York state regulators.
On February 14, the US will report January Consumer Price Index data, which will reveal whether price increases have been contained after the central bank's rate hikes. Lower inflation rates would generally be celebrated as it reduces the pressure on the US Federal Reserve (FED) to slow down the economy. But on the other hand, lower consumer demand is likely to put pressure on corporate earnings, which could further trigger the recessionary environment.
Let's look at Bitcoin derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
Demand for Asia-based stablecoins weakens, but there are signs of resilience
A great way to measure the overall demand for cryptocurrencies in Asia is the USD coin (USDC) premium, which is the difference between China-based peer-to-peer transactions and the US dollar.
Excessive buying demand tends to push the indicator above fair value by 104%, and during bear markets, the stablecoin's market supply is flooded, causing a discount of 4% or more.
The USDC premium currently sits at 2%, down from 3% on February 6, indicating a decline in demand to buy stablecoins in Asia. However, the indicator remains positive, indicating subdued buying activity from retail traders despite Bitcoin's price drop of 6% in the period.
Still, one should monitor the BTC futures markets to understand how professional traders are positioning themselves.
Futures premium left neutral to bullish range
Retail traders often avoid quarterly futures because of the difference in prices from the spot markets. Meanwhile, professional traders prefer these instruments because they avoid fluctuating funding rates on a perpetual futures contract.
The annualized 3-month futures premium should trade between +4% and +8% in healthy markets to cover costs and associated risks. Therefore, when futures trade below this range, it shows a lack of confidence on the part of leveraged buyers. This is typically a bearish indicator.
The chart shows decreasing momentum as the Bitcoin futures premium broke below the 4% neutral threshold on Feb. 8. This move represents a return to the neutral to bearish sentiment that prevailed until mid-January.
Related: Coinbase CEO Invites DC Residents for Ice Cream and Crypto Talk
Crypto traders expect more pressure from regulators
While Bitcoin's 9% drop since the failed $24,000 resistance test on Feb. 2 looks daunting, the overwhelming flow of negative regulatory news has caused professional traders to become risk averse.
At the same time, the traditional market looks for more data before adding bullish positions. For example, investors would prefer to wait until the US Fed shows conviction about the end of the interest rate hike move.
Currently, the odds favor the bears, as regulatory uncertainty provides a favorable environment for fear, uncertainty and doubt, even if the news is non-Bitcoin related and focused on cryptocurrency exchanges and stablecoins.
The views, thoughts and opinions expressed here are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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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