Total cryptocurrency market capitalization fell to $1.02 trillion on June 15, its lowest level in three months. But while derivatives market resilience and late-week price rallies amid uncertainty over stablecoin reserves give bulls hope, it may be too soon to celebrate.
Regulatory conditions for cryptocurrencies deteriorate
In recent weeks there has been a downward trend fueled by regulatory uncertainty. Last week, Bitcoin (BTC) and BNB rose 2.5%, but XRP fell 5.2% and Ether (ETH) fell 0.7%.
Note that the 10-week long pattern has tested the support level multiple times, indicating that the bulls will have a hard time breaking the downtrend as regulatory conditions worsen around the world.
For starters, New York-based derivatives exchange Bakkt is removing Solana from its offering (SUN), Polygon (MATIC) and Cardano (ADA) due to recent regulatory developments in the United States. The decision follows lawsuits filed last week by the Securities and Exchange Commission (SEC) against crypto exchanges Binance and Coinbase.
Most recently, on June 16, Binance has been the subject of a preliminary investigation in France since February 2022. The exchange’s French affiliate allegedly failed to obtain an operating license and illegally offered its services to French clients. In addition, the exchange lacked security procedures. know your customeraccording to regulators.
Also on June 16, Binance announced its exit from the Netherlands, with users being asked to withdraw their funds as soon as possible. The decision to leave the Dutch market came after the platform failed to obtain a Virtual Asset Service Provider (VASP) license.
Despite the worsening regulatory environment for cryptocurrencies, two derivatives metrics indicate that the bulls have not yet thrown in the towel. However, they are likely to find it difficult to break out of the bearish price formation.
Derivatives Show Balanced Demand for BTC and ETH Leverage
Perpetual contracts, also known as reverse swaps, have an implicit fee that is typically charged every eight hours.
A positive funding rate indicates that the longs (buyers) are demanding more leverage. However, the opposite situation occurs when shorts (sellers) demand more leverage, causing the funding rate to turn negative.
The seven-day funding rate for BTC and ETH is neutral, indicating balanced demand for leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts.
BNB was the only exception, with traders paying up to 1% weekly for short bets, which can be explained by added risks following regulatory pressure on Binance.
Tether FUD Hurts USDT Premium
Tether’s cousin (USDT) is a good indicator of demand from China-based retail cryptocurrency traders. Measures the difference between China-based peer-to-peer trades and the US dollar.
Excessive buying demand tends to push the indicator above 100% fair value, and during bear markets, Tether’s market supply is flooded, causing a discount of 2% or more.
Tether’s premium in Asian markets fell to 99.2% after being flat since June 6, indicating moderate malaise. Reports on June 16 about the exposure of Tether’s reserves to Chinese debt markets could have been the cause.
Potential Market Catalysts
Derivatives metrics showed resilience considering the strong regulatory activity targeting exchanges. Consequently, the bears have yet to prove their strength if they intend to push the crypto market below the trillion dollar mark.
Despite the most recent bounce from support, any gains above $1.12 trillion in capitalization (10% higher than the $1.02 trillion low) will likely be short-lived for months to come.
Therefore, with the Bitcoin halving still over 300 days away, bulls are pinning their hopes on the approval of a Bitcoin ETF and/or a Federal Reserve rate cut as potential bull market catalysts.
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