For the past six weeks, a bearish market structure has been weighing down on cryptocurrency prices, resulting in a total market capitalization of $1.13 trillion, the lowest level in two months. Derivative metrics seem to suggest that crypto bulls will struggle to break this downtrend, though analyzing a shorter timeframe shows an average gain of 0.3% between May 12 and May 19 for Bitcoin (BTC), Ether (ETH), and BNB.
The descending wedge formation, which began in mid-April, could potentially last until July, making it challenging for bulls to push for an upside breakout. In addition to this, the impending U.S. debt ceiling standoff has left the Treasury running low on cash, raising the possibility of a government default, though most investors believe an agreement can be made before that occurs.
Traditionally, gold has been viewed as a safe haven during uncertain economic times but even the precious metal’s price has not been immune to the recent correction. Stablecoin USDC, on the other hand, has seen its issuer Circle back it with short-term bonds and collateralized loans from banks like Goldman Sachs and Royal Bank of Canada instead of longer-dated Treasuries, offering additional protection in case of a U.S. debt default.
Derivative markets, such as perpetual futures contracts, have yet to show signs of bearishness, with neutral funding rates indicating balanced demand from leveraged longs and shorts. The BTC options volume put-to-call ratio, which assesses market sentiment, has also remained below 1.0, indicating a preference for neutral-to-bullish call options over the protective put options.
While the options market remains hesitant to take protective put options even after an 8.3% drop in Bitcoin’s price, traders appear unwilling to bet on the market until there’s more clarity regarding the U.S. debt standoff. With less than two weeks until June 1st, when the Treasury could potentially run out of cash to pay its debts, the situation remains uncertain.
In such a scenario, it is unclear whether the total market capitalization can break free from the descending wedge formation. On the bright side, professional traders are not using derivatives to bet on a catastrophic market scenario. However, given the uncertainty in the macroeconomic environment, there seems to be limited reason for bulls to place bets on a rapid crypto market recovery. As a result, derivatives metrics suggest the bears are in a comfortable position for the time being.
It is crucial for investors to conduct their research and evaluate the market conditions carefully before making any investment decisions, especially during such uncertain times.