Bitcoin bulls remain in charge even in the face of increasing regulatory FUD

Bitcoin (BTC) price broke above $25,000 on February 21, accruing a 53% year-to-date gain at the time, it made sense to expect the rally to continue after US retail sales data from the previous week vastly exceeded market consensus. This has raised investor expectations for bankruptcy and a possible recession in the US economy.

The ultimate success of the US Federal Reserve’s strategy is to raise interest rates and reduce the $9 trillion balance sheet reduction without significantly damaging the economy. If the miracle happens, the results will benefit risk assets, including stocks, commodities and Bitcoin.

Unfortunately, the cryptocurrency market took a hit after the $25,200 level was rejected and the price of Bitcoin plunged 10% between February 21 and February 24. Regulatory pressure, especially from the US, partly explains the reason investors for the worsening market conditions.

In an interview with New York Magazine on February 23, Securities and Exchange Commission (SEC) Chairman Gary Gensler said “everything other than Bitcoin” is a potential security instrument and falls under the agency’s jurisdiction. However, some lawyers and policy analysts commented that Gensler’s opinion “is not law.” Therefore, the SEC has no authority to regulate cryptocurrencies unless it proves its case in court.

In addition, at the G20 meeting, US Secretary Janet Yellen stressed the importance of implementing a strong regulatory framework for cryptocurrencies. Yellen’s comments on February 25 were followed by International Monetary Fund (IMF) managing director Kristalina Georgieva who indicated that “if regulation fails,” then an outright ban “must not” be taken off the table.

Let’s take a look at Bitcoin derivatives metrics to better understand how professional traders are positioned in the current market conditions.

Asia-based stablecoin demand is stagnant

Traders should refer to the USD Coin (USDC) premium to measure cryptocurrency demand in Asia. The index measures the difference between China-based peer-to-peer stablecoin trading and the United States dollar.

The huge demand to buy cryptocurrency can force the indicator above the fair value at 104%. On the other hand, stablecoin market offers are flooded when the market is bearish, resulting in discounts of 4% or higher.

After peaking at 4% at the end of January, the USDC premium indicator in Asian markets has fallen to a neutral 2%. The metric has since stabilized with a modest 2.5% premium, which should be interpreted positively due to recent regulatory FUD.

BTC futures premium stuck despite price rejection at $25,000

Quarterly Bitcoin futures are an instrument of choice for whales and arbitrage tables. Due to settlement dates and price differences from the spot market, it can be complicated for retail traders. However, the most important advantage is the lack of fluctuating funding rates.

These fixed-month contracts typically trade at a slight premium to market views, indicating that sellers are asking for more money to hold debt for longer. Consequently, the futures market should trade at an annual premium of 5% to 10% in a healthy market. This situation is known as contango and is not exclusive to the crypto market.

The chart shows traders flirting with neutral sentiment between February 19 and February 24 as Bitcoin price held above $23,750. However, the indicator failed to enter the neutral-to-bearish area of ​​0% to 5% as additional regulatory uncertainty was added, especially after Gensler’s comments on February 23. As a result, it became clear that pro traders are not comfortable with Bitcoin. breaking price above $25,000.

related: Is SEC action against BUSD more about Binance than stablecoins?

Weak economic data shifted control to the bulls

Since February 25, the price of Bitcoin has gained 4.5%, indicating that the impact of regulatory newsflow has been limited. More importantly, global stock markets reacted positively on February 27 after the US Commerce Department reported durable goods orders fell 4.5% in January from the previous month. This data increases the pressure for the US FED to reduce its interest rate hike program earlier than expected.

Since Bitcoin’s 50-day correlation with S&P 500 futures is currently at 83%, cryptocurrency traders are more likely to support a rise in risk asset prices during the week. A correlation indicator above 70% indicates that the two assets move together, which means that the macroeconomic scenario may play an important role in determining the overall trend.

Unless there is additional pressure from regulators or conflicting economic data, it is likely to favor Bitcoin bulls considering BTC futures metrics and Asian stablecoins.