Bitcoin bulls remain responsible even in the face of increasing regulatory FUD

The Bitcoin (BTC) price broke above $25,000 on February 21, posting a 53% year-to-date gain. At the time, it made sense to expect the rally to continue after last week’s US retail sales data significantly exceeded market consensus. This fueled investors’ hopes for a soft landing and a possible averted recession in the US economy.

The pinnacle of the US Federal Reserve’s strategy success will be to raise interest rates and reduce the $9 trillion balance sheet without significantly damaging the economy. If that miracle happens, the outcome will benefit risk assets, including stocks, commodities and Bitcoin.

Unfortunately, cryptocurrency markets took a hit after the $25,200 level was rejected and the Bitcoin price plunged 10% between February 21st and February 24th. Regulatory pressure, mainly from the US, partly explains investors’ reasoning for the deteriorating market conditions.

In a February 23 New York Magazine interview, Securities and Exchange Commission Chairman Gary Gensler argued that “anything but Bitcoin” is potentially a security instrument and falls under the agency’s jurisdiction. However, several lawyers and policy analysts commented that Gensler’s opinion is “not the law.” Therefore, the SEC had no authority to regulate cryptocurrencies unless it proved its case in court.

Additionally, at a G20 meeting, US Treasury Secretary Janet Yellen emphasized the importance of implementing a strong regulatory framework for cryptocurrencies. Yellen’s February 25 remarks followed International Monetary Fund Managing Director Kristalina Georgieva pointing out that “if regulation fails,” outright bans “should not be taken off the table.”

Let’s look at Bitcoin derivatives calculations to better understand how professional traders are positioned in the current market conditions.

Demand for stablecoins in Asia is stagnant

Traders should refer to the USD Coin (USDC) premium to gauge cryptocurrency demand in Asia. The index measures the difference between China-based peer-to-peer stablecoin trades and the US dollar.

Excessive demand for the purchase of cryptocurrency can push the indicator above the fair value of 104%. On the other hand, stablecoins’ market supply is flooded during bearish markets, causing a 4% or higher discount.

After peaking at 4% in late January, the USDC premium indicator in Asian markets has fallen to a neutral 2%. The calculation has since stabilized at a modest premium of 2.5%, which should be interpreted as a positive given the recent regulatory R&D.

BTC’s futures premium was fixed even after the price declined to $25,000

Bitcoin quarterly futures are the preferred instruments of whales and arbitrage tables. Due to the settlement date and price difference from the spot markets, they can seem complicated for retail traders. However, their most notable advantage is the lack of a variable financing rate.

These fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to hold off settlement for longer. Accordingly, futures markets should trade at a 5% to 10% annual premium in healthy markets. This situation is known as contango and is not exclusive to crypto markets.

The chart shows traders flirting with the neutral sentiment between February 19 and February 24, when the Bitcoin price held above $23,750. However, the indicator failed to enter the neutral-to-bearish 0% to 5% range as additional regulatory uncertainty was added, particularly after Gensler’s comments on February 23. As a result, it became clear that pro-traders were not comfortable with Bitcoin price above $25,000.

Related: Is the SEC’s action against BUSD more about Binance than stablecoins?

Weak economic data shifted control to the bulls

Since February 25, the Bitcoin price has risen 4.5%, indicating that the impact of the regulatory news flow has been limited. More importantly, the global stock market reacted positively on February 27 after the US Commerce Department reported durable goods down 4.5% in January compared to the previous month. These data increased pressure for the Fed to reduce its rate hike program earlier than expected.

As Bitcoin’s 50-day correlation with S&P 500 futures currently stands at 83%, cryptocurrency traders are more inclined to support risk asset prices strengthening throughout the week. A correlation indicator above 70% indicates that both assets are moving in sync, which means that the macroeconomic scenario is likely to play a central role in determining the overall trend.

Unless there is additional pressure from regulators or conflicting economic data, the odds favor Bitcoin bulls considering BTC futures and Asian stablecoin metrics.