Bitcoin Is Inching Closer To Its Range Highs Yet Derivatives Traders Remain On The Sidelines Observing

Bitcoin's price exhibited resilience near its medium-term range high. However, various factors are deterring derivatives traders from initiating new positions.

Source: ambcrypto.com

Between May 15 and May 16, Bitcoin surged by 8.4%, reaching a peak of $66,750, its highest level in three weeks. Despite stabilizing around $65,000, this price surge signifies a reversal after Bitcoin retested the $57,000 support on May 1. However, despite these gains, Bitcoin derivatives metrics do not indicate a prevailing bullish sentiment.

Factors That Are Contributing To Bitcoin's Lackluster Performance

Bitcoin's lackluster performance can partially be attributed to the strong showing of traditional assets. The S&P 500 index hit an all-time high on May 16, gaining 6% over 15 days, while gold climbed 4% in the same period, nearing its highest closing price ever at $2,375. To reclaim its peak closing price of $73,084, Bitcoin needs to rally by another 12%. However, the main driver of its price, spot Bitcoin exchange-traded funds (ETFs) inflows, has waned. Despite capturing $12.1 billion in investments since their January launch, these ETFs have seen stagnation for the past two months.

A deteriorating regulatory landscape, particularly in the U.S., may also explain investor reluctance to engage in Bitcoin derivatives despite recent price strength. CFTC Chair Rostin Behnam's warning on May 6 about forthcoming enforcement actions against the crypto ecosystem over the next two years adds to the uncertainty. Along with recent enforcement actions against privacy-focused services and broker-dealers like Robinhood, contribute to regulatory ambiguity.

The absence of a clear legislative framework and jurisdictional clarity further dampens investor enthusiasm for Bitcoin. Negative media coverage, such as the arrest of 193 suspects in China for money laundering using stablecoins on May 15, and a U.S. Senate inquiry into cryptocurrency funding of terrorist organizations in the Middle East on May 1, have also fueled apprehension.

Despite Bitcoin's Rally Above $66,000, Derivatives Markets Remain Flat

To gauge whether the sentiment of whales has been influenced by the deteriorating regulatory landscape, it's essential to analyze data from Bitcoin futures markets. The long-to-short ratio of top traders consolidates positions across spot, perpetual, and quarterly futures contracts, providing a comprehensive insight into their bullish or bearish stance. However, this sentiment is less optimistic than on May 14, with the indicator at 1.25, favoring longs. Similarly, the Exchange's top traders exhibit decreased bullishness compared to May 14, as the long-to-short ratio dropped from 1.31 to 1.14.

To gauge the appetite of retail traders, attention should be directed towards perpetual futures, also known as inverse swaps. These contracts feature an embedded rate recalculated every eight hours to address leverage demand imbalances. A negative rate signifies a preference for leverage being employed by shorts (sellers). Observe that Bitcoin's funding rate has remained under 0.01% for the last month, indicating a balanced interest between buyers and sellers. Derivatives data show that even the recent climb to over $66,000 hasn't boosted confidence among retail traders.

Essentially, investors remain hesitant to make bullish wagers due to ongoing regulatory uncertainties. However, a potential breakthrough above $68,000 could catch many traders off guard, possibly propelling the rally further as there is capacity for increased bullish leverage.

Disclaimer: FameEX makes no representations on the accuracy or suitability of any official statements made by the exchange regarding the data in this area or any related financial advice.