NEWSLETTER
bitcoin (btc) briefly reached $38,000 on November 24, but faced formidable resistance at the price level. On November 27, the price of bitcoin traded below $37,000, which has not changed since a week ago.
What is striking is the unwavering strength of btc derivatives, indicating that the bulls remain firm in their intentions.
An intriguing development is unfolding in China, as Tether (USDT) is trading below its fair value in the local currency, the yuan. This discrepancy often arises due to different expectations between professional traders participating in derivatives and retail clients participating in the spot market.
How have regulations affected bitcoin derivatives?
To gauge the exposure of whales and arbitrage desks using bitcoin derivatives, btc options volume must be evaluated. By examining put (sell) and call (call) options, we can estimate the prevailing bullish or bearish sentiment.
Since November 22, puts have consistently lagged calls in volume, by an average of 40%. This suggests less demand for protective measures, a surprising development given the heightened regulatory scrutiny following Binance’s plea deal with the US Department of Justice (DOJ) and the US Securities and Exchange Commission lawsuit. United against the Kraken exchange.
While investors may not anticipate disruptions to Binance services, the likelihood of further regulatory action against exchanges serving US customers has increased. Additionally, people who previously relied on hiding their activity might now think twice when the Justice Department gains access to historical transactions.
Furthermore, it is unclear whether the agreement that former CEO Changpeng “CZ” Zhao reached with authorities will extend to other unregulated exchanges and payment gateways. In summary, the repercussions of recent regulatory actions remain uncertain and the prevailing sentiment is pessimistic, with investors fearing additional restrictions and possible actions targeting market makers and stablecoin issuers.
To determine if the bitcoin options market is an anomaly, let’s examine btc futures contracts, specifically monthly ones, preferred by professional traders due to their fixed funding rate in neutral markets. These instruments typically trade at a premium of 5% to 10% to account for the extended settlement period.
Between November 24 and 26, the btc futures premium flirted with excessive optimism, hovering around 12%. However, on November 27, it fell to 9% as bitcoin price tested the support of $37,000, a neutral level but close to the bullish threshold.
Retail Traders Less Optimistic After Hopium ETF Fades
Moving on to retail interest, there is a growing sense of apathy due to the absence of a positive near-term trigger, such as the possible approval of a spot bitcoin exchange-traded fund (ETF). The SEC is not expected to make its final decision until January or February 2024.
USDT’s premium against the yuan hit its lowest point in more than four months on the OKX exchange. This premium serves as an indicator of demand among China-based retail cryptocurrency traders and measures the gap between peer-to-peer trading and the US dollar.
Since November 20, USDT has been trading at a discount, suggesting either a significant desire to liquidate cryptocurrencies or increased regulatory concerns. In any case, it is far from being a positive indicator. Furthermore, the last instance of a 1% positive premium occurred 30 days ago, indicating that retail traders are not particularly excited about the recent rally towards $38,000.
Related: What’s next for Binance’s Changpeng ‘CZ’ Zhao?
In essence, professional traders are unfazed by short-term corrections, regardless of the regulatory landscape. Contrary to apocalyptic predictions, Binance’s status is unaffected and lower trading volume on unregulated exchanges may increase the chances of a timely approval of the bitcoin ETF.
The disparity in time horizons may explain the divide between the optimism of professional traders and that of retail investors. Additionally, recent regulatory measures could pave the way for greater participation by institutional investors, offering potential benefit in the future.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
