Bitcoin (BTC) gained 8.4% between May 15 and May 16, peaking at $66,750, which was the highest level in three weeks. Even though Bitcoin stabilized near $65,000, this price change marks a turnaround after BTC retested the $57,000 support on May 1. However, these gains were not enough to instill bullishness according to Bitcoin derivatives metrics.

What’s behind Bitcoin’s lackluster performance?

Part of Bitcoin investors' disappointment can be attributed to the strong performance of traditional assets. The S&P 500 index soared to an all-time high on May 16, with a total gain of 6% over 15 days. Meanwhile, gold gained 4% in the same period and is currently trading at $2,375, less than 1% away from its highest closing price ever.

Bitcoin needs to rally another 12% to reclaim its highest closing price of $73,084. This feat seems unlikely given that the primary driver of price, namely spot Bitcoin exchange-traded funds (ETFs) inflows, has faded. These ETFs captured $12.1 billion in investments since their launch in January but have stagnated for the past two months.

The worsening regulatory environment, especially in the U.S., might explain why investors are hesitant to buy Bitcoin using derivatives despite the recent price strength. On May 6, U.S. Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam warned that further enforcement actions would be taken against the crypto ecosystem over the next six months to two years.

Additionally, U.S. regulators have multiple pending cases against crypto firms, including Binance, Coinbase, and Kraken. Recent enforcement actions against privacy-focused services and broker-dealers like Robinhood have also contributed to the uncertainty. The lack of a clear legislative framework and jurisdictional clarity limits the appetite of Bitcoin investors.

Moreover, cryptocurrencies received negative media attention after the arrest of 193 suspects for money laundering using stablecoins in China. Authorities alleged on May 15 that these individuals transferred $1.9 billion using stablecoins to smuggle items and investments overseas. Additionally, on May 1, a couple of U.S. Senators requested an investigation into the use of cryptocurrencies to fund terrorist organizations in the Middle East.

Bitcoin derivatives are flat despite the rally above $66,000

To understand whether whales’ sentiment has been affected by the worsening regulatory environment, one should analyze data from BTC futures markets. The top traders' long-to-short ratio consolidates positions across spot, perpetual, and quarterly futures contracts, offering a comprehensive view of how bullish or bearish these traders are.

At OKX, the current long-to-short ratio stands at 0.96, indicating that bulls and bears have roughly equal positions. However, this is a less optimistic stance compared to May 14, when the indicator stood at 1.25, favoring longs. Similarly, Binance top traders are now less bullish compared to May 14, as the long-to-short ratio declined to 1.14 from 1.31.

Related: Bitcoin whale demand accelerates, but price jump could ‘take weeks’ — Analysts

To assess the appetite of retail traders, one should focus on perpetual futures, also known as inverse swaps. These contracts incorporate an embedded rate recalculated every eight hours to compensate for leverage demand imbalances. Essentially, a negative rate indicates a preference for leverage being utilized by shorts (sellers).

Note how Bitcoin’s funding rate has stayed below 0.01% for the past month, signaling balanced demand between longs and shorts. According to derivatives metrics, not even the recent rally above $66,000 was able to instill confidence in retail traders.

In essence, investors are not confident in placing bullish bets as regulatory uncertainty persists. On the bright side, if Bitcoin eventually breaks above $68,000, most traders will be caught by surprise, potentially fueling the rally as there is room for bullish leverage.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.