Bitcoin (BTC) has been trading in a tight 3.4% range for the past three days after successfully defending the $25,500 support on June 10. In this time, investor attention has shifted to the macroeconomic area, as the US Federal Reserve will announce its interest rate decision on June 14.
Cryptocurrencies may work without relying on traditional financial markets, but the cost of capital affects almost all investors. In May, the Fed raised its benchmark interest rate to 5%-5.25%, the highest since 2007.
All eyes will be on Fed Chairman Jerome Powell’s 30-minute speech after the rate announcement as markets are pricing the chances of a pause at the June meeting at 94%, according to the fedwatch tool of the CME.
Cryptocurrencies fear more than just an FOMC meeting
The upcoming FOMC meeting is not the only concern for the economy, as the US Treasury plans to issue more than 850,000 million in new letters between now and September.
The additional issuance of public debt tends to cause higher yields and, therefore, higher borrowing costs for companies and households. Given that the credit market is already tight due to the recent banking crisis, gross domestic product growth is likely to be severely compromised in the coming months.
According to on-chain analytics company Glassnode, miners have been selling Bitcoin since the beginning of June, which could add more pressure to the price. Among the possible triggers are the reduction in income due to the cooling of Ordinal activity and the fact that the hash rate has reached an all-time high.
Investors are now wondering if Bitcoin will test the resistance of $25,000, a level not seen since mid-March, and for this reason they are keeping a close eye on Bitcoin futures contract premiums and trading costs. hedging through options on BTC.
Bitcoin Derivatives Post Modest Improvement
Bitcoin quarterly futures they are popular with sellers and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to the spot markets, indicating that sellers are asking for more money to delay settlement.
As a result, BTC futures contracts in healthy markets should trade at an annualized premium of between 5% and 10%, a situation known as contango, which is not unique to cryptocurrency markets.
Demand for leveraged long positions in BTC has risen slightly, as the futures contracts premium rose to 3% from 1.7% on June 10, although it is still far from the neutral threshold of 5%.
Operators should also analyze the options markets to find out if the recent correction has caused more optimism among investors. The 25% slope of the options delta is a telltale sign of when arbitrage desks and market makers charge extra for upside or downside protection.
In summary, if traders anticipate a fall in the price of Bitcoin, the delta metric will rise above 7%, and the stir phases tend to have a negative reading of 7%.
The 25% delta metric went into “fear” mode on June 10 when the Bitcoin price faced a 4.5% correction. Currently at 4%, the indicator shows a balanced price between protective puts and neutral to bullish calls.
The bearish trend of cryptocurrencies seems to continue
Normally, a futures basis of 3% and a delta deviation of 6% would be considered bearish indicators, but this is not the case given the extreme uncertainty about economic conditions and the recent accusations against Binance and Coinbase. The SEC alleges that both exchanges conducted unregistered token offerings and sales in addition to operating without a broker license.
US lawmakers have criticized the SEC for its strict approach to cryptocurrencies. On June 12, Representative Warren Davidson proposed a bill aimed at restructuring the SEC by firing Chairman Gary Gensler and redistributing power among commissioners.
The uncertain regulatory environment for cryptocurrencies remains an obstacle to attracting institutional investors. Additionally, the risk of a recession to the US economy limits demand for risky assets like Bitcoin, raising the odds of a retest of the $25,000 support.
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