Bitcoin (BTC) price initially rebounded from its recent low at $29,000, but overall market sentiment after a 25% price drop in five days is still largely negative. Currently, the crypto “Fear and Greed index”, which uses volatility, volume, social metrics, bitcoin dominance and trending data from Google, has plunged to its lowest level since March 2020 and at the moment, there appears to be little market protection against further downside.
Regulation continues to weigh on the markets
Regulation remains the main threat to markets and it is clear that investors are taking a risk-free approach to high volatility assets. Earlier this week, during a Senate Banking Committee hearing, US Treasury Secretary Janet Yellen called for a stablecoin regulatory framework and specifically addressed the fall of the TerraUSD stablecoin ( UST) below $0.70.
Additionally, the UK introduced two bills to regulate crypto 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 sector, including by supporting “safe adoption of cryptocurrencies.”
Meanwhile, searches for “Bitcoin” and “crypto” on Google are approaching their lowest levels in 17 months.
This indicator could partly explain why Bitcoin is 56% below its all-time high of $69,000 as public interest is low, but let’s take a look at how professional traders are positioning themselves in the derivatives markets.
Long-to-short data confirms a lack of buyer demand
The net long-short ratio of the best traders analyzes positions in spot, perpetual and futures contracts. From an analytical point of view, this helps to better understand whether professional traders are bullish or bearish.
There are sometimes methodological discrepancies between different exchanges, so viewers should monitor changes rather than absolute numbers.
According to the long-to-short indicator, Bitcoin may have jumped 4% since the low of $29,000 on May 11, but professional traders haven’t increased their bullish bets. For example, OKX’s top trader ratio has fallen from 1.20 to the current level of 1.00.
Additionally, data from Binance shows these traders are stable around 1.10, and a similar trend has occurred at Huobi, with the long/short ratio of top traders standing at 0.97. The data shows no demand for leveraged buys among professional investors despite the 5% price rally.
CME futures traders are no longer bearish
To further prove that the structure of the crypto market has deteriorated, traders should analyze the CME Bitcoin futures premium. The measure compares longer-term futures and the traditional spot market price.
These fixed-time contracts typically trade at a slight premium, indicating that sellers are asking for more money to delay settlement longer. As a result, 1-month futures should trade at a premium of 0.5% to 1% in healthy markets, a situation known as contango.
Whenever this indicator fades or turns negative (pullback), it is an alarming red flag as it indicates that bearish sentiment is present.
The chart above shows how the indicator entered reverse on May 10 and the move marks the lowest reading in two months with a negative premium of 0.4%.
The data shows that institutional traders are below the “neutral” line measured by the futures basis, indicating the formation of a bearish market structure.
Additionally, long to short data from major traders shows a lack of appetite despite the rapid price recovery of 4% from the $29,000 level and the fact that the price of BTC is now trading at around the same level. level is also of concern. Unless the derivatives metrics show some improvement, the odds of a further price correction remain high.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.