Bitcoin Struggles to Hold $29,000 as Fear of Regulation and Terra Treasure Collapse Hit Crypto Hard

Bitcoin (BTC) price initially rebounded from its recent low at $29,000, but overall market sentiment after a 25% price drop in five days remains largely negative. Currently, the cryptocurrency “fear and greed” index, which uses volatility, volume, social metrics, bitcoin dominance, and Google trend data, has fallen to its lowest level since March 2020 and at the moment, there appears to be little protection for the market against further downside.

Cryptography “Fear and Greed Index”. Source: Alternative.me

Regulation still weighs heavily on markets

Regulation remains the main threat weighing on the markets and it is clear that investors are taking a risk-averse approach to highly volatile assets. Earlier this week, during a Senate Banking Committee hearing, US Treasury Secretary Janet Yellen called for a regulatory framework for stablecoins and specifically addressed the TerraUSD (UST) stablecoin dropping below $0.70.

Moreover, the UK introduced two bills aimed at addressing crypto regulation on May 10. The Financial Services and Markets Bill and the Economic Crime and Corporate Transparency Bill aim to strengthen the country’s financial services industry, including by supporting the “safe adoption of cryptocurrencies.”

Meanwhile, searches for “Bitcoin” and “crypto” on Google are near 17-month lows.

Global search for “Bitcoin” and “Cryptos”. Source: Google Trends

This indicator can partly explain why bitcoin is down 56% from its all-time high at $69,000 because overall interest is low but let’s take a look at how professional traders are positioning in the derivatives markets.

Long to short data confirm the lack of buyers’ demand

The net long to short ratio of major traders analyzes positions on spot, perpetual and futures contracts. From an analysis point of view, it gives a better understanding of whether professional traders are bullish or bearish.

There are occasional methodological differences between the different exchanges, so viewers should monitor changes rather than absolute numbers.

Top bitcoin traders exchange long to short ratio. Source: Coinglass

According to a long to short indicator, Bitcoin may have jumped 4% since its low of $29,000 on May 11, but professional traders did not increase their bullish bets. For example, the ratio of top traders in OKX fell from 1.20 to the current level of 1.00.

Moreover, Binance data shows that these traders are stabilizing around 1.10, and a similar trend has occurred in Huobi where the big traders buy-to-sell ratio is stable at 0.97. The data shows no demand for leverage purchases among professional investors despite the 5% price rebound.

CME futures traders are no longer bearish

To further demonstrate the deterioration of the crypto market structure, traders should analyze the premium for Bitcoin futures contracts on the Chicago Mercantile Exchange. The scale compares long-term futures contracts and the traditional spot market price.

These fixed-calendar contracts usually trade at a slight premium, which indicates that sellers are asking for more money to withhold settlement for a longer period. As a result, one-month futures contracts should trade at a premium of 0.5% to 1% in healthy markets, a situation known as contango.

When this indicator fades or turns negative (backward), it is an alarming red flag as it indicates bearish tendencies.

One-month BTC CME futures contract for BTC/USD at FTX. Source: TradingView

The chart above shows how the index went back on May 10 and the move marks the lowest reading in two months at a negative 0.4% premium.

The data shows that institutional traders are below the “neutral” boundary measured on the basis of futures and this indicates the formation of a bearish market structure.

Moreover, the long to short data of the major traders shows a lack of appetite despite the rapid price recovery of 4% from the $29,000 level and the fact that BTC price is now trading near the same level is also worrisome. Unless derivatives metrics show some improvement, the odds of further price correction remain high.

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