How are Bitcoin options traders positioning themselves for the US banking crisis?

Over the past 14 days, cryptocurrency markets have traded within an unusually tight range of 7.1%. In other words, investors are unwilling to place new bets until there is further regulatory clarity, particularly in the US.

Total crypto market cap fell 1% to $1.2 trillion in the seven days ending May 4, primarily as a result of Bitcoin’s (BTC) price decline of 1.1%, Ether’s (ETH) loss of 0.2 % and BNB (BNB) which traded down 1.4%. .

Note that the exact same $1.16 trillion-$1.22 trillion total market cap interval was previously for 12 days between March 29th and April 10th. The conflicting forces: regulatory uncertainty weighing it down and the banking crisis pushing prices up are likely to account for the lack of risk appetite on both sides.

SEC’s crypto crackdown may backfire

The Coinbase exchange, for example, has battled the US Securities and Exchange Commission over the need for clear rules for trading digital assets. The stakes were raised after the exchange was handed a Wells notice, a “legal threat” for “possible violations of securities laws”, on March 22.

However, the latest decision has been favorable to Coinbase, as the court has instructed the SEC to clarify the security rules for digital assets within 10 days.

On the other hand, it seems that the banking crisis has not disappeared after the lender PacWest Bancorp has announced that it is considering a buyout. The regional financial institution had $40 billion in assets, although about 80% of its loan book is dedicated to commercial real estate and mortgages — a sector that has been plagued by rising interest rates.

The recent crypto side trend suggests that investors are hesitant to place new bets until there is more clarity on whether the US Treasury will continue to inject liquidity to contain the banking crisis, which favors inflation and positive momentum for scarce assets.

BTC, ETH derivatives show muted demand from bears

Perpetual contracts, also known as inverse swaps, have a built-in rate that is usually charged every eight hours. Exchanges use this fee to avoid imbalances in currency risk.

A positive funding rate indicates that longs (buyers) require more leverage. However, the opposite situation occurs when shorts (sellers) require additional leverage, causing the funding rate to become negative.

The seven-day funding rate for Bitcoin and Ether was neutral, indicating balanced demand from leveraged longs (buyers) and shorts (sellers) using perpetual futures contracts. BNB was the only exception, as shorts have paid 1.4% per week to keep positions open, indicating bearishness.

To rule out externalities that may have solely affected the futures markets, traders can measure market sentiment by measuring whether more activity is through call (call) options or put (sell) options. Generally speaking, call options are used for bullish strategies, while put options are used for bearish strategies.

The expiration of options can have a significant impact on the market, especially if there are a large number of contracts involved. When options contracts expire, the holders of these contracts may choose to exercise their rights, which may result in buying or selling pressure on the underlying asset. This could lead to increased volatility in the price of Bitcoin, which resulted in a $575 million advantage for bulls at the last expiration on April 28.

A put-to-call ratio of 0.70 indicates that put open interest lags the more bullish calls and is therefore bullish. Conversely, a 1.40 indicator favors put options, which can be considered bearish.

The put-to-call ratio for Bitcoin options volume has been below 0.90 since April 26, indicating a higher preference for neutral-to-bullish call options. More importantly, although Bitcoin briefly corrected down to $27,700 on May 1, there was no significant increase in demand for the protective put options.

Related: US regional bank shares fall despite Fed calling banking system ‘sound’

Traders are pricing low odds for a break above $1.2 trillion

The options market shows that whales and market makers are not willing to take protective positions even after Bitcoin crashed 7.8% on May 1st. However, given the balanced demand in futures markets, traders appear hesitant to place further bets until there is clarity on whether the US Treasury will continue to bail out the troubled regional banking sector.

It is unclear whether the total market capitalization will be able to break through the $1.22 trillion barrier. But one thing is for sure: Professional traders are not betting on a cryptocurrency crash, given that demand for protective puts has dampened.

This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making a decision.