Bitcoin Climbs as Derivatives Traders Stay Cautious

Bitcoin (BTC) experienced a notable price surge, climbing 8.4% between May 15 and May 16 to reach $66,750, the highest level observed in three weeks. Although it later stabilized near $65,000, this price movement marked a significant turn from the $57,000 support retested on May 1. Despite this rebound, metrics from Bitcoin derivatives did not signal a corresponding increase in market bullishness.

Several factors are contributing to Bitcoin’s unimpressive performance. Foremost among these are the strong performances of traditional financial assets. On May 16, the S&P 500 index hit an all-time high, achieving a 6% gain over 15 days. Similarly, gold appreciated by 4% during the same period and is now trading at $2,375, just shy of its record closing price. Bitcoin, Still needs to rally an additional 12% to match its highest closing price of $73,084, a target that appears distant given the current market conditions.

A key element influencing Bitcoin’s struggles is the waning inflow into spot Bitcoin exchange-traded funds (ETFs). Although these ETFs captured $12.1 billion in investments since their inception in January, growth has stagnated over the past two months. The challenging regulatory landscape, particularly in the United States, is likely deterring investors from diving into Bitcoin, exacerbating the stagnant ETF inflows.

On May 6, U.S. Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam indicated a forthcoming increase in enforcement actions within the crypto sector over the next six months to two years. This regulatory posture, coupled with ongoing cases against major crypto firms—including Binance, Coinbase, and Kraken—creates an uncertain environment. Additional enforcement actions against privacy-centric services and broker-dealers like Robinhood have also added to the market’s unease.

The opaque legislative framework and unclear regulatory jurisdiction further restrict Bitcoin investors’ enthusiasm. The negative police actions involving cryptocurrencies haven’t helped either. On May 15, Chinese authorities arrested 193 individuals on accusations of using stablecoins to launder $1.9 billion. Around the same time, a couple of U.S. Senators called for an investigation into the use of cryptocurrencies to fund terrorist activities in the Middle East.

Examining Bitcoin derivatives markets reveals that the sentiment among large investors, often referred to as whales, remains muted. At OKX, the long-to-short ratio reflects a near balance between bullish and bearish positions, resting at 0.96. This is a less optimistic stance compared to May 14 when the ratio was 1.25, indicating stronger bullish sentiment. A similar trend is observable on Binance, where the top traders’ long-to-short ratio decreased to 1.14 from 1.31 over the same period.

Retail traders’ behavior in the perpetual futures market also highlights the prevailing uncertainty. Perpetual futures, also known as inverse swaps, use an embedded rate recalculated every eight hours to manage demand imbalances for leveraged trades. Bitcoin’s funding rate has remained below 0.01% over the past month, signifying balanced demand between long and short positions. This suggests that even the recent rally above $66,000 has not generated enough confidence among retail traders.

Investors remain wary of taking bullish positions due to ongoing regulatory uncertainties. If Bitcoin manages to surpass the $68,000 mark, it could catch many traders by surprise. This scenario could potentially ignite a rally as traders adjust their positions, leading to a possible surge fueled by newfound bullish leverage.