First Mover Americas: Bitcoin’s Risk-Off Rally

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By Omkar Godbole

Cryptocurrencies traded under pressure after the European Union Parliament approved a bill targeting “unhosted wallets” – software/hardware facilitating holding, storage and transfer of crypto, which is not hosted by a third party, such as a financial institution or a credit service provider.

Under the new regulation, exchanges would have to do a know-your-customer (KYC) of owners of unhosted wallets. The committees will vote on the “Transfer of Funds Regulation” on Friday.

Bitcoin (BTC) dipped to $44,300 before recovering to $45,000, tracking the uptick in U.S. stock futures.

Blockchain data tracked by IntoTheBlock showed that $200 million worth of bitcoin was deposited into centralized exchanges in seven days. Investors usually transfer coins to exchanges when intending to liquidate their holdings.

However, institutional activity was bullish, with exchange-traded funds registering an inflow of 4,469 BTC last week, pushing the total holdings to a new lifetime high, according to ByteTree Asset Management.

Data released at 12:30 UTC showed the U.S. economy added slightly fewer jobs than expected in March amid soaring inflation and recession fears. Nonfarm payrolls expanded by 431,000 for the month, missing the forecast of 490,000, while the unemployment rate dropped to 3.6%, the Bureau of Labor Statistics reported. Average hourly earnings, a closely watched inflation metric, increased 0.4% on the month and 5.6% on the year.

“A strong labor market could cause a short-term drawdown in bitcoin due to a potential rise in the dollar and pressure on equity markets. However, rising U.S. incomes are a positive signal for cryptocurrency in the longer term,” Alex Kuptsikevich, senior financial analyst at FxPro, said in an email.

“It increases demand for it when we see an increasing pull to hedge our savings against inflation. Still, bonds and equities remain overvalued for current conditions,” Kuptsikevich added.

By Omkar Godbole

Bitcoin’s recent rally from $38,000 to $45,000 is characterized by an absence of exuberance among perpetual futures traders, a sign of lesser risk appetite in the market.

The average perpetual funding rate or the cost associated with holding long or short perpetual futures on prominent crypto exchanges Binance and Bybit remains under zero, signaling a neutral-to-bearish bias.

“Funding rates on Binance and Bybit have now been neutral to below neutral for 118 consecutive days,” Vetle Lunde, market analyst at Arcane Research, told CoinDesk in a WhatsApp chat. “This illustrates the long-lasting poor sentiment in the market, and accompanied by the low futures basis [single-digit premium], it’s pretty clear that the demand to add long exposure is, and has been, low for a prolonged duration.”

A positive and rising funding rate means leverage traders are making bullish bets, a sign of risk-on sentiment. Meanwhile, a negative funding rates means leverage is skewed bearish.

The low participation from derivative traders is perhaps a good sign as it means the cryptocurrency is less vulnerable to sudden and sharp price drops, called leverage washouts.

Bull run in early stages

The spread between the front month and the next month futures contracts trading on the Chicago Mercantile Exchange (CME) remains locked in the $0 to $205 range, which has historically been the case during the early stages of the rally.

Parabolic runs that kicked off in early October 2021 and December 2021 coincided with the spread moving well above $205. On the contrary, tightening of the spread to zero has marked significant bottoms in the past.

Today’s newsletter was produced by Parikshit Mishra and Bradley Keoun.