Bitcoin (BTC) price topped $25,000 on February 21, up 53% year-to-date. At the time, last week’s U.S. retail sales data was well above market consensus, so it makes sense to expect the rally to continue. This raised investor hopes for a soft landing in the US economy and avoiding a recession.
The apex of the success of the US Federal Reserve’s strategy is to raise interest rates and reduce the shrinkage of its $9 trillion balance sheet without seriously harming the economy. If that miracle happens, the outcome will be profitable for risky assets such as stocks, commodities and Bitcoin.
Unfortunately, the cryptocurrency market took a hit after the $25,200 level was rejected and Bitcoin’s price plummeted by 10% between February 21st and February 24th. Regulatory pressure, mainly from the US, partly explains investors’ rationale for deteriorating market conditions.
In a Feb. 23 interview with New York Magazine, Securities and Exchange Commission Chairman Gary Gensler argued that “everything other than Bitcoin” is a potential security measure and falls under the agency’s jurisdiction. . However, multiple lawyers and policy analysts have commented that Gensler’s opinion is “not law.” Therefore, the SEC did not have the power to regulate cryptocurrencies without proving that fact in court.
Additionally, at the G20 meeting, US Treasury Secretary Janet Yellen emphasized the importance of implementing a strong regulatory framework for cryptocurrencies. Following Yellen’s remarks on Feb. 25, International Monetary Fund Managing Director Kristalina Georgieva pointed out that if “regulation fails,” an outright ban “should not be taken off the table.” .
To get a better idea of how professional traders are positioned in the current market conditions, let’s take a look at Bitcoin derivatives indicators.
Demand for Asia-based stablecoins stagnates
Traders should refer to the USD Coin (USDC) premium to gauge cryptocurrency demand in Asia. The index measures the difference between China-based peer-to-peer stablecoin trading and the US dollar.
Excessive cryptocurrency buying demand can push the indicator above 104% of fair value. Meanwhile, market offers for stablecoins flood in during the bear market, causing discounts of 4% or more.
The USDC premium indicator for Asian markets has fallen to a neutral 2% after peaking at 4% in late January. The indicator has since stabilized at his modest premium of 2.5%, which should be interpreted as positive given the recent regulatory FUD.
BTC Futures Premium Fixed Even After Price Rejected at $25,000
Quarterly Bitcoin futures are the favorite vehicle of whales and arbitrage desks. It may look complicated for retailers because of the difference in price between the settlement date and the spot market. However, the most notable advantage is the lack of variable funding rates.
These fixed-month contracts typically trade at a small premium to the spot market, indicating that sellers are demanding more money to hold settlements longer. Therefore, futures markets should trade at a premium of 5% to 10% per annum over healthy markets. This situation is known as contango and is not unique to crypto markets.
The chart shows that traders will be flirting with neutral sentiment from Feb. 19 to Feb. 24 as the price of Bitcoin rises above $23,750. However, the added regulatory uncertainty, especially after Gensler’s remarks on Feb. 23, prevented the indicator from entering the neutral to bearish 0% to 5% territory. As a result, it became clear that professional traders were not familiar with Bitcoin. The price is over $25,000.
Related: Is the SEC action against BUSD more about Binance than stablecoins?
Bearish economic data has shifted the lead to the bulls
Bitcoin’s price has risen 4.5% since February 25, indicating the limited impact of regulatory news flows. More importantly, global stock markets responded favorably on Feb. 27 after the US Department of Commerce reported that his January durable goods orders fell 4.5% month-on-month. The data put pressure on the Fed to scale back its rate hike program sooner than expected.
Bitcoin’s 50-day correlation with S&P 500 futures is currently at 83%, so crypto traders tend to support rising risk asset prices throughout the week. A correlation indicator above 70% indicates that both assets are moving in tandem. This means that macroeconomic scenarios are likely to play a pivotal role in determining overall trends.
Barring further pressure from regulators or conflicting economic data, the odds are in favor of the Bitcoin bulls given the BTC futures and Asian stablecoin indicators.
The views, thoughts and opinions expressed herein are those of the author only and do not necessarily reflect or represent the views or opinions of Cointelegraph.
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making decisions.