Bitcoin experienced a significant increase of 8.4% between May 15 and May 16, reaching a peak of $66,750, the highest it had been in three weeks. However, despite stabilizing around $65,000, these gains were not enough to generate optimism among Bitcoin investors, as indicated by Bitcoin derivatives metrics.
One reason for this lackluster performance can be attributed to the strong performance of traditional assets. The S&P 500 index reached an all-time high on May 16, gaining a total of 6% over a 15-day period. Similarly, gold gained 4% during the same period and is currently trading at $2,375, just 1% away from its highest closing price ever.
In order for Bitcoin to reclaim its highest closing price of $73,084, it would need to rally another 12%. However, this seems unlikely given that the primary driver of price, spot Bitcoin exchange-traded funds (ETFs) inflows, has faded. These ETFs attracted $12.1 billion in investments since their launch in January but have stagnated in the past two months.
The worsening regulatory environment, particularly in the U.S., may also explain why investors are hesitant to purchase Bitcoin using derivatives, despite its recent price strength. The U.S. Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam warned on May 6 that further enforcement actions would be taken against the crypto ecosystem over the next two years. Additionally, there are multiple pending cases against crypto firms, including Binance, Coinbase, and Kraken. The lack of a clear legislative framework and jurisdictional clarity also limits the appetite of Bitcoin investors.
Negative media attention surrounding cryptocurrencies has further contributed to investors’ lack of confidence. The arrest of 193 suspects in China for money laundering using stablecoins, as well as the investigation into the use of cryptocurrencies to fund terrorist organizations in the Middle East, have cast a shadow on the industry.
Analyzing data from BTC futures markets provides insight into the sentiment of whales, who have a significant impact on the market. The long-to-short ratio of top traders on exchanges like OKX and Binance indicates a decline in bullish sentiment compared to May 14.
Examining perpetual futures contracts, which incorporate an embedded rate recalculated every eight hours, shows that the funding rate for Bitcoin has remained below 0.01% for the past month, indicating balanced demand between longs and shorts. This lack of confidence among retail traders is further evidence of the prevailing regulatory uncertainty.
Overall, investors are hesitant to make bullish bets on Bitcoin due to the ongoing regulatory uncertainty. However, if Bitcoin manages to break above $68,000, it could catch traders by surprise and potentially fuel a rally as there is room for bullish leverage. It is important for readers to conduct their own research and exercise caution when making investment decisions.