Market Wrap: Cryptos Rise After Biden's Executive Order; Sentiment Still Mixed

Option traders noticed a surge in demand for BTC volatility products.

Bitcoin (BTC) traded higher on Wednesday after U.S. President Biden issued a long-awaited executive order on crypto, which did not impose new regulations on the industry.

Instead, the executive order directs federal agencies to better communicate about their work in the digital asset sector. It does not lay out specific positions the administration wants agencies to adopt, according to CoinDesk's Nikhilesh De. Still, the order could lead to additional regulation in the future.

"The order seems relatively benign, hence giving the market some clarity," Marcus Sotiriou, an analyst at the U.K.-based digital asset broker GlobalBlock, wrote in an email to CoinDesk. "As many investors had prepared for the downside risks of this event by waiting on the sidelines, we are seeing many buy bitcoin back in what appears to be a spot-driven rally."

"A year ago, bitcoin holders were afraid of regulation, and now the U.S. government sees the value and long-term prospects for innovation and opportunity," Edward Moya, an analyst at Oanda, told CoinDesk. "Regulation is viewed as a positive for crypto. Large parts of the crypto industry need to get cleaned up and that should happen once crypto companies have regulatory clarity."

Bitcoin rose as much as 10% following the release of the executive order, and traded above $40,000 over the past 24 hours. Meanwhile, ether (ETH) rose about 5% over the past 24 hours. Equities were also higher on Wednesday, while traditional safe havens such as gold and the U.S. dollar declined.

Volatility returns

Implied volatility in the bitcoin options market is starting to rise from extreme lows over the past few days. That could point to greater price swings outside of the $30,000-$40,000 BTC price range, especially ahead of the U.S. Federal Reserve's two-day policy meeting on March 15-16.

QCP Capital, a Singapore-based crypto trading firm, noticed increased activity in short-term BTC and ETH volatility markets, with significant demand during the Asia trading day. "We managed to take some profit on our March 18 long volatility position," QCP wrote in a Telegram announcement. Long volatility is a trading strategy that usually involves buying options to profit from a greater than expected rise in realized volatility.

Sentiment has been less bearish among bitcoin option traders, evidenced by the decline in the put/call ratio over the past month. Still, there has been a slight uptick in the ratio in recent days, indicating some caution among traders.

Other indicators show immense bearish sentiment, which means traders are still skeptical despite recent price jumps. For example, "option buyers are willing to pay higher premiums to hedge their expected price decline risk," Deribit, a crypto options and futures exchange, wrote in a blog post.

During times of market stress (such as a war), however, sentiment can fluctuate wildly.

"The impact of local wars and subsequent series of events on the market has shown significant “shortwave” characteristics: The volatility of options near the expiration date jumps up and down rapidly, while the volatility of options farther away from the expiration date remains relatively stable," Deribit wrote.

Altcoin roundup

LUNA surges 25% to new all-time high of $104: Terra’s LUNA token rose to as high as $104.58 on Wednesday morning, topping a previous all-time record of $103.34 notched in December. According to data from CoinMarketCap, LUNA was up 25% over the previous 24 hours. The token recently pulled back a bit to about $99. 

LUNA has now more than doubled in price since putting in a 2022 low of about $44 in late January. Its current valuation just shy of $38 billion makes it the sixth-largest cryptocurrency by market cap, according to CoinDesk’s Tracy Wang.

Market cap of gold-backed cryptos surpass $1B as yellow metal nears record high: Crypto tokens tied to gold, a traditional inflation hedge, continue to see solid growth as the specter of stagflation hangs over the global economy. 

Taken together, the market capitalization of the top gold-backed coins – PAX gold (PAXG) and tether gold (XAUT) – rose above $1 billion early this week, marking a 60% increase on a year-to-date basis, according to data provided by Arcane Research. The total market capitalization of all cryptocurrencies has declined 17.8% to $1.80 trillion this year, per chart platform TradingView, according to CoinDesk’s Omkar Godbole. 

EmpireDAO is building a WeWork for Web 3: In a DAO landscape often headlined by promises of real-world acquisitions, EmpireDAO has announced what few in the space have yet to pull off – opening its doors. The decentralized autonomous organization, founded by entrepreneur Mike Fraietta in October, aims to provide coworking space for companies and individuals building Web 3 projects. It opened its first physical location on Tuesday in New York City, according to CoinDesk’s Cheyenne Ligon and Eli Tan. 

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