Bitcoin (BTC) rose 8.4% from May 15 to May 16 to peak at $66,750, its highest level in three weeks. Despite Bitcoin stabilizing near $65,000, this price change marks a reversal after BTC retested the $57,000 support on May 1. However, these gains were not enough to instill bullishness, according to Bitcoin derivatives indicators.
What’s Behind Bitcoin’s Poor Performance?
Some of the disappointment among Bitcoin investors can be attributed to the strong performance of traditional assets. The S&P 500 index hit an all-time high on May 16, rising a total of 6% in 15 days. Meanwhile, gold rose 4% over the same period and is currently trading at $2,375, less than 1% from its all-time high closing price.
Bitcoin would need to rise another 12% to regain its all-time high of $73,084. Given that the main driver of the price, namely spot Bitcoin exchange-traded fund (ETF) inflows, has disappeared, such an outcome seems unlikely. These ETFs have attracted $12.1 billion in investments since their launch in January, but have stagnated over the past two months.
The worsening regulatory environment, especially in the United States, may explain why investors are hesitant to use derivatives to buy Bitcoin despite recent price strength. On May 6, U.S. Commodity Futures Trading Commission (CFTC) Chairman Rostin Behnam warned that additional enforcement actions would be taken against the cryptocurrency ecosystem over the next six months to two years.
Additionally, U.S. regulators have several pending lawsuits against cryptocurrency companies, including Binance, Coinbase, and Kraken. Recent enforcement actions against privacy-focused services and broker-dealers like Robinhood have also added to uncertainty. The lack of a clear legislative framework and jurisdictional clarity limits the appetite of Bitcoin investors.
Moreover, cryptocurrencies have received negative media attention following the arrest of 193 suspects in China for money laundering using stablecoins. Authorities alleged on May 15 that these individuals transferred $1.9 billion using stablecoins to smuggle goods and investments overseas. Also on May 1, two US senators called for an investigation into the use of cryptocurrencies to fund terrorist organizations in the Middle East.
Despite the rally above $66,000, Bitcoin derivatives remain stagnant.
To understand whether whale sentiment has been affected by the worsening regulatory environment, we need to analyze data from the BTC futures market. Top traders’ long/short ratios aggregate positions across spot, perpetual, and quarterly futures contracts to provide a comprehensive view of how bullish or bearish these traders are.
The current long-short ratio on OKX is 0.96, indicating that bullish and bearish positions are almost equal. However, this is a less optimistic stance compared to May 14th, when the index was 1.25, favoring buying. Likewise, top Binance traders are now less optimistic than they were on May 14th. This is because the long-short ratio decreased from 1.31 to 1.14.
Related: Bitcoin Whale Demand Accelerates, but Price Rise ‘Could Take Weeks’ — Analyst
To assess the preferences of retail traders, we need to focus on perpetual futures, also known as inverse swaps. These contracts contain an implied interest rate that is recalculated every eight hours to compensate for leverage demand imbalances. In essence, negative interest rates indicate that short sellers (sellers) prefer to use leverage.
Over the past month, Bitcoin’s funding rate has remained below 0.01%, indicating balanced demand between buying and selling. Even the recent rally above $66,000 failed to inspire confidence among retail traders, according to derivatives indicators.
In essence, as regulatory uncertainty persists, investors lack confidence in making optimistic investments. On the positive side, if Bitcoin eventually breaks above $68,000, it would surprise most traders and potentially fuel a rally as there is room for bullish leverage.
This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.