Bitcoin’s price has remained steady within a narrow 3.4% range for the past three days after defending the $25,500 support on June 10. However, investors’ attention has shifted to the macroeconomic area as the United States Federal Reserve is set to announce its interest rate decision on June 14. Despite cryptocurrencies’ independence from traditional finance markets, the cost of capital impacts almost every investor.
In May, the Fed raised its benchmark interest rate to 5-5.25%, the highest since 2007. All eyes will be on Fed Chair Jerome Powell’s media speech 30 minutes after the rate announcement, as markets are pricing in 94% odds of a pause at the June meeting, based on the CME FedWatch tool. The upcoming Federal Open Market Committee meeting is not the only concern for the economy, as the U.S. Treasury is set to issue more than $850 billion in new bills between now and September.
Additional government debt issuance tends to cause higher yields and, thus, higher borrowing costs for companies and families. Considering the already-restrained credit market due to the recent banking crisis, odds are that gross domestic product growth will be severely compromised in the coming months.
The Impact of Miners Selling Bitcoin and Futures Contract Premiums
On-chain analytics firm Glassnode has reported that miners have been selling Bitcoin (BTC) since the start of June, which could add further pressure to the price. Among the potential triggers are reduced earnings from a cooldown in Ordinals activity and the mining hash rate reaching an all-time high. Investors are now questioning whether Bitcoin will test the $25,000 resistance, a level unseen since mid-March. Consequently, they are closely monitoring Bitcoin futures contract premiums and the costs of hedging using BTC options.
Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement. As a result, BTC futures contracts in healthy markets should trade at a 5 to 10% annualized premium – a situation known as contango, which is not unique to crypto markets.
The demand for leveraged BTC longs has slightly increased as the futures contract premium increased to 3% from 1.7% on June 10, although it is still far from the neutral 5% threshold. Traders should also analyze options markets to understand whether the recent correction has caused investors to become more optimistic. The 25% delta skew is a telling sign of when arbitrage desks and market makers overcharge for upside or downside protection.
The Impact of Regulatory Hurdles and Crypto Fund Outflows
Crypto fund outflows have reached $417M over 8 weeks as investor caution persists. The 25% delta skew metric entered “fear” mode on June 10 as Bitcoin’s price faced a 4.5% correction. Currently at 4%, the indicator displays balanced pricing between protective puts and neutral-to-bullish call options. Normally, a 3% futures basis and a 6% delta skew would be considered bearish indicators, but that is not the case given the extreme amount of uncertainty regarding the economic conditions and the recent charges against Binance and Coinbase.
The Securities and Exchange Commission (SEC) alleges those exchanges held unregistered offerings and sales of tokens and failed to register as brokers. U.S. lawmakers have criticized the SEC for its heavy-handed approach to crypto enforcement. On June 12, Rep. Warren Davidson proposed a bill aimed at restructuring the SEC by firing Chair Gary Gensler and redistributing power between the commissioners.
The uncertain crypto regulatory environment remains a hurdle to attracting institutional investors. Furthermore, the recession risk for the U.S. economy limits the demand for risk-on assets such as Bitcoin, increasing the odds of the $25,000 support being tested.
Bitcoin’s price faces uncertainty amidst economic concerns and regulatory hurdles. The impact of the U.S. Federal Reserve’s interest rate decision, miners selling Bitcoin and futures contract premiums, and crypto fund outflows are all contributing factors. The uncertain regulatory environment for cryptocurrencies and the risk of a U.S. recession limit the demand for risk-on assets, increasing the odds of the $25,000 support being tested.