Bitcoin has been confined to a 3.4% range for the past three days after managing to protect the $25,500 support on June 10. During this period, investors have turned their focus to the macroeconomic realm as the US Federal Reserve is due to reveal its interest rate decision on June 14.
Cryptocurrencies may be separate from traditional finance markets, but the cost of capital affects nearly all investors. In May, the Federal Reserve increased its benchmark rate of interest to a level not seen since 2007, at 5-5.25%.
All attention will be focused on Federal Reserve Chairman Jerome Powell’s remarks to the media 30 minutes after the rate announcement, since the CME FedWatch tool is indicating that markets are pricing in a 94% likelihood of no change at the June meeting.
Crypto fears more than just an FOMC meeting
The economy is not only worried about the upcoming Federal Open Market Committee meeting, as the U.S. Treasury is poised to issue more than $850 billion in new bills between now and September.
The issuance of more government debt is likely to lead to higher interest rates and consequently, increased borrowing costs for businesses and households. Given the already tight credit market caused by the recent banking crisis, it is probable that economic growth will be significantly hindered in the near future.
According to Glassnode, a company that tracks on-chain data, miners have been unloading Bitcoin (BTC) since the beginning of June, which could be exacerbating the downward pressure on the price. Possible causes might include reduced revenues from a decrease in Ordinals activity and the highest ever mining hash rate.
Investors are now inquiring whether Bitcoin will be able to reach the $25,000 resistance, a price not seen since mid-March, and for this reason, they are vigilantly observing Bitcoin futures contract premiums and the expenses of protecting their investments using BTC options.
Bitcoin derivatives show modest improvement
Quarterly futures for Bitcoin are favored by large investors and arbitrage desks. Nevertheless, these contracts with set expiration dates usually trade at a premium compared to the spot market, suggesting that sellers are demanding more money to defer settlement.
Consequently, BTC futures contracts in healthy markets should be priced at a 5 to 10% annualized premium – a phenomenon referred to as contango, which is not exclusive to crypto markets.
The demand for leveraged BTC longs has gone up slightly, as the futures contract premium rose from 1.7% to 3% on June 10, though it is still distant from the 5% neutral point.
Traders should also analyse the options markets to ascertain whether the recent correction has caused investors to become more optimistic. A 25% delta skew is a signal that arbitrage desks and market makers are charging too much for either upside or downside protection.
If traders expect a decrease in the price of Bitcoin, the skew metric will be higher than 7%, and periods of enthusiasm usually have a negative skew of 7%.
Crypto fund withdrawals have totaled $417M in the past eight weeks, indicating that investors remain wary.
On June 10, the 25% delta skew metric registered “fear” when Bitcoin’s price experienced a 4.5% decrease. Currently at 4%, the indicator is showing a balanced situation between protective puts and neutral-to-bullish call options.
The crypto bear trend looks set to continue
Typically, a 3% futures basis and a 6% delta skew would be seen as bearish signs, however, due to the great amount of uncertainty with regards to economic conditions and the recent accusations made against Binance and Coinbase by the Securities and Exchange Commission (SEC), this is not the case. The SEC has accused the two exchanges of having unregistered offerings and sales of tokens, as well as failing to register as brokers.
U.S. legislators have denounced the SEC for its stringent approach to regulating cryptocurrencies. On June 12, Representative Warren Davidson presented a bill that would restructure the SEC by dismissing Chair Gary Gensler and redistributing authority among the commissioners.
The crypto regulatory landscape remaining uncertain is an impediment to drawing in institutional investors. Additionally, the possibility of a U.S. economic recession curbs the appetite for risk-on assets such as Bitcoin, raising the chances of the $25,000 support level being tested.
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