Crypto markets are struggling, trading at three-month lows, due to regulatory uncertainties and transparency issues with stablecoins.
The total market capitalization for cryptocurrencies dropped to $1.02 trillion on June 15, marking a three-month low. Despite some positivity stemming from the durability of the derivatives market and end-of-week price boosts amidst stablecoin reserve uncertainty, it’s potentially premature to rejoice.
Crypto Regulation Conditions Intensify
The past several weeks have been characterized by a downward trend, driven by regulatory instability. Bitcoin BTC at $26,445 and BNB at $244 showed modest gains of 2.5% last week, whereas XRP at $0.49 declined by 5.2%, and Ether ETH traded at $1,726, dropping 0.7%.
This bearish pattern, lasting ten weeks, has repeatedly challenged the support level. It suggests that it will be challenging for bullish traders to break the trend while global regulatory conditions continue to escalate.
Initially, Bakkt, a New York-based derivatives exchange, is phasing out Solana SOL at $16, Polygon MATIC at $0.6026, and Cardano ADA at $0.262 due to recent U.S. regulatory shifts. This decision follows recent lawsuits filed by the Securities and Exchange Commission against crypto exchanges Binance and Coinbase.
Even more recent, on June 16, it was revealed that Binance has been under preliminary investigation in France since February 2022. The French division of the crypto exchange allegedly failed to secure an operating license and unlawfully offered its services to French customers. Additionally, according to regulators, the exchange did not comply with Know Your Customer protocols.
Simultaneously, Binance announced its departure from the Netherlands, instructing users to withdraw their funds promptly. This decision followed the exchange’s failure to secure a virtual asset service provider license.
Despite these daunting regulatory developments in the crypto sphere, two derivatives metrics suggest that bulls are still in the game, albeit struggling to shift the bearish price trend.
BTC, ETH Derivatives Suggest Balanced Demand
Inverse swaps, or perpetual contracts, typically have an embedded rate that is charged every eight hours.
When the funding rate is positive, it indicates that longs (buyers) are seeking more leverage. Conversely, a negative rate suggests that shorts (sellers) are demanding more leverage.
The seven-day funding rate for BTC and ETH shows neutrality, signaling a balanced demand from leveraged longs and shorts using perpetual futures contracts.
BNB was the outlier, with traders paying up to 1% per week for short bets, potentially due to the increased risk following regulatory scrutiny of the Binance exchange.
Tether FUD Impacts USDT Premium
The Tether USDT $1.00 premium serves as a good measure of demand from China-based crypto retail traders. It calculates the difference between China-based peer-to-peer trades and the U.S. dollar.
Excessive buying demand usually drives the indicator above its fair value at 100%. During bearish markets, an overflow of Tether’s market offer can result in a discount of 2% or more.
The Tether premium in Asian markets fell to 99.2% after being stable since June 6, indicating a slight unease. This could be due to the June 16 reports concerning Tether reserves’ exposure to Chinese debt markets.
Potential Catalysts for the Market
Considering the significant regulatory pressure targeting crypto exchanges, the resilience displayed by derivative metrics is commendable. However, bears would need to prove their strength if they intend to push the crypto market below the $1 trillion threshold.
Despite the recent bounce from the support level, any gains surpassing $1.12 trillion in capitalization (a 10% increase from the $1.02 trillion low) are likely to be temporary in the coming months.
Currently, with the Bitcoin halving still over 300 days away, bulls are eyeing the potential approval of a Bitcoin ETF and/or a Federal Reserve rate cut as possible catalysts for a bull market.