Will Cryptocurrency Markets End Their 10-Week Slump?

The total market capitalization of cryptocurrency dropped to its lowest point in three months, at $1.02 trillion on June 15. Despite the derivatives market’s resilience and the end-of-week price increases in the face of instability in the reserves of stablecoins, it may be premature to be too optimistic.

Crypto regulatory conditions deteriorate

Over the past few weeks, a bearish trend has been driven by regulatory ambiguity. Last week, Bitcoin (BTC) and BNB experienced an increase of 2.5%, whereas XRP declined 5.2% and Ether (ETH) decreased by 0.7%.

The 10-week pattern has tested the support level multiple times, indicating that it will be difficult for bulls to break away from the bearish trend, especially in the midst of deteriorating regulatory conditions around the world.

Beginning with this, the New York-based derivatives exchange Bakkt is taking away the listing of Solana (SOL), Polygon (MATIC) and Cardano (ADA) due to the recent regulatory advancements in the United States. This decision follows the legal action brought against crypto exchanges Binance and Coinbase by the Securities and Exchange Commission (SEC) last week.

What is causing the crypto market to rise today?

In February 2022, Binance became the subject of a preliminary investigation in France. It has been reported that the French arm of the crypto exchange did not acquire the necessary operating license and provided its services to French customers without permission. Additionally, it has been noted that the exchange was not following proper Know-Your-Customer procedures as per the regulations.

On June 16, Binance declared its exit from the Netherlands, prompting users to withdraw their funds promptly. This decision to leave the Dutch market was due to the exchange’s inability to secure a virtual asset service provider (VASP) license.

Despite the increasingly stringent regulations on cryptocurrencies, two derivatives measurements suggest that bulls have not yet given up. However, they may find it difficult to break the bearish price pattern to the upside.

Derivatives show balanced demand for BTC, ETH leverage

Perpetual contracts, also referred to as inverse swaps, typically have an embedded rate that is assessed every eight hours.

A positive funding rate suggests that those who are taking a long position (buyers) require more leverage. Conversely, when those who are taking a short position (sellers) need additional leverage, the funding rate becomes negative.

The perpetual futures contracts for BTC and ETH have a neutral seven-day funding rate, indicating that leveraged longs (buyers) and shorts (sellers) are in equilibrium.

BNB was the lone exception, with investors willing to pay up to 1% per week for short positions, which can be attributed to the heightened risks following the regulatory oversight of the Binance platform.

Tether FUD hurts USDT premium

The Tether (USDT) premium serves as an indicator of the demand among Chinese crypto retail traders. It is calculated by comparing the prices of China-based peer-to-peer trades and the US dollar.

Excessive buying can cause the indicator to exceed its fair value of 100%, and when bearish markets occur, the market supply of Tether is increased, resulting in a discount of 2% or more.

The Tether premium in Asian markets dropped to 99.2% after remaining steady since June 6, suggesting a certain degree of unease. It is possible that the reports on June 16 concerning Tether reserves’ involvement in Chinese debt markets could have been the cause.

Potential market triggers

Derivatives metrics showed fortitude in the face of the stringent regulatory measures targeting crypto exchanges. Thus, bears must demonstrate their power if they are to bring crypto down below the trillion dollar mark.

Three key Ether price metrics indicate a growing resistance at the $1,750 level.

Despite the recent increase in market capitalization from the $1.02 trillion low to $1.12 trillion, it is likely that any further gains will be short-lived over the coming months.

Hence, as the Bitcoin halving is yet to happen in more than 300 days, the bulls are relying on either the authorization of a Bitcoin ETF and/or a reduction in the Federal Reserve rate to be possible stimulators of a bullish market.