After twenty days of holding the $22,500 support, the price of Bitcoin (BTC) finally collapsed on February 9.
The downtrend is even more concerning as the S&P 500 is trading at its highest level in six months, but the broader crypto market continues to correct.
Regulatory pressure, especially in the United States, could explain Bitcoin’s recent underperformance. For starters, on January 9, the Kraken exchange reached an agreement with the United States Securities and Exchange Commission (SEC) to stop staking services for US clients. Crypto also agreed to pay $30 million in disgorgement, prejudgment interest and civil penalties.
On February 10, cryptocurrency lending company Nexo Capital announced that its Earn Interest product for US customers will be closed in April. Nexo pointed to a $45 million settlement with the SEC and other regulators on January 19 as the reason for the service termination.
US SEC Chairman Gary Gensler issued a warning to crypto companies on January 10 to “come in and follow the law,” explaining that their business models are “full of conflicts” and claiming they should “disband” bundled products. Gensler said the company must register with the SEC.
Another blow to crypto market sentiment came on February 13 after Paxos Trust Company announced the end of its relationship with Binance for its US dollar-pegged stablecoin BUSD amid a probe by New York state regulators.
On February 14, the US will report January consumer price index data, which will reveal that price increases have been delayed following the central bank’s interest rate hike. Normally, a lower inflation rate would be celebrated as it eases the pressure on the US Federal Reserve (FED) to rein in the economy. But on the other hand, lower consumer demand could pressure corporate earnings, which could lead to a more recessionary environment.
Let’s take a look at Bitcoin derivatives metrics to better understand how professional traders are positioned in the current market conditions.
Demand for Asian-based stablecoins has weakened, but there are signs of resilience
The best way to measure the overall demand for cryptocurrency in Asia is the USD Coin (USDC) premium, which is the difference between China-based peer-to-peer trading and the United States dollar.
Excessive buying demand tends to force the indicator above its fair value at 104%, and during bearish markets, stablecoin market offers are flooded, resulting in discounts of 4% or higher.
Currently, the USDC premium is at 2%, down from 3% on February 6, indicating a decrease in demand for stablecoin purchases in Asia. However, the indicator remains positive, showing moderate buying activity from retail traders despite the 6% drop in Bitcoin prices over the period.
Still, one should monitor the BTC futures market to understand how professional traders are positioned.
Futures premiums left the neutral-to-bullish range
Retail traders typically avoid quarter futures because of the price difference from the spot market. Meanwhile, professional traders prefer these instruments because they avoid fluctuations in the funding rate in futures contracts.
Three-month futures annual premiums should trade between +4% and +8% in a healthy market to cover the associated costs and risks. Thus, when the futures trade below this range, it indicates a lack of confidence from the buyers of influence. This is usually a bearish indicator.
The chart shows downward momentum as the Bitcoin futures premium broke below the 4% neutral threshold on February 8. This move represents a return to the neutral-to-bearish sentiment that prevailed until mid-January.
related: Coinbase CEO invites DC residents to chat ice cream and crypto
Crypto traders expect more pressure from regulators
While Bitcoin’s 9% decline since the failed test of $24,000 resistance on February 2nd seems unappealing, the overwhelming flow of negative regulatory news has led professional traders to become risk-averse.
At the same time, traditional markets are looking for further data before adding bullish positions. For example, investors prefer to wait until the US FED shows confidence in the end of the interest rate hike movement.
Currently, the expected possibility due to regulatory uncertainty provides a pleasant environment for fear, uncertainty and doubt – although the news is not related to Bitcoin and focuses on crypto exchanges and stablecoins.
The views, thoughts and opinions expressed here are solely those of the author 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 decisions.