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The Impact of External Factors on Bitcoin’s Fading Bullish Prospects
Uncertainty surrounding inflation and the U.S. debt crisis seem to be ominously influencing Bitcoin's bullish momentum. A pessimistic technical pattern has contributed to the overall downturn of the crypto market capitalization over the previous seven weeks. Driven primarily by a 2% drop in Bitcoin, and a 1.7% and 2.5% fall in BNB and XRP, the market underwent a 1.3% correction between May 18 and May 25.
Bitcoin and Ether Stumble Amidst Adverse Macroeconomic Indicators
Persistent inflation is causing a stir among investors, with many factoring in an increased probability of further interest rate hikes by the U.S. Federal Reserve. Recent statistics indicate that personal consumption expenditure in the U.S. increased by 5%, a figure significantly exceeding the 2% inflation target.
Adding to the concerns, Germany's statistics office revised the nation's GDP down from 0% to -0.3% for the first quarter of 2023 versus the previous quarter. This is the second consecutive decrease. The looming U.S. debt ceiling crisis and the rapidly depleting U.S. Treasury reserves further cloud the picture.
Regulatory risks also present challenges with multiple governments eyeing stricter regulations on crypto assets. The latest development comes from the European Systemic Risk Board (ESRB), an oversight body under the European Central Bank. The ESRB suggested that potential bank run risks on stablecoins warrant closer examination, citing a lack of transparency, particularly with Tether.
Derivatives Indicate Bears' Reluctance to Short
Perpetual contracts, also known as inverse swaps, generally include a rate that is billed every eight hours. A positive funding rate implies that longs (buyers) are seeking more leverage. In contrast, when shorts (sellers) need additional leverage, the funding rate becomes negative.
Over the past seven days, the funding rate for BTC and Ether has remained neutral, suggesting a balanced demand from leveraged buyers and sellers using perpetual futures contracts.
To discount influences specific to futures markets, traders can gauge market sentiment by observing whether call (buy) options or put (sell) options are more prevalent.
A 0.70 put-to-call ratio is bullish, indicating that the interest in put options is trailing the more optimistic calls. Conversely, a 1.40 ratio favors put options and can be viewed as bearish.
Bitcoin options volume's put-to-call ratio has remained below 1.0 in recent weeks, showing a higher preference for neutral-to-bullish call options. Notably, even as Bitcoin momentarily dipped to $25,900 on May 25, demand for protective put options did not see a significant spike.
Persistent Challenges Weigh on Bitcoin's Price
With demand on futures markets remaining balanced, traders appear reluctant to place additional bets until there is more clarity regarding the U.S. debt crisis. It's uncertain whether the crypto market can break free from the downward wedge pattern.
Despite professional traders not utilizing derivatives to anticipate a catastrophic drop in Bitcoin's price, a catalyst for a bullish rally is currently lacking given the macroeconomic uncertainties. Consequently, bears maintain the upper hand as the descending wedge is projected to lead to another 10% correction by July.
