Bitcoin Traders’ Optimism Remains Despite BTC Price Falling to $37,000
BTC briefly touched $38,000 on November 24, but faced formidable resistance. Bitcoin price remained unchanged on November 27th. It was trading at under $37,000. The unwavering strength of BTC derivatives is the most striking as it signals that the bulls are steadfast in their intentions.
A fascinating development is taking place in China as USDT Tether is trading $1.00 below its fair value in the local currency, the Yuan. This discrepancy often arises due to different expectations between professional traders operating in the derivatives business and retail clients operating in the spot market.
How have the regulations affected Bitcoin derivatives?
To estimate the risk of whales and arbitrage desks using Bitcoin derivatives, one must estimate the volume of BTC options. By examining the put (sell) and call (buy) options, we can assess the prevailing bullish or bearish sentiment.
Since November 22, put options have consistently underperformed call options by an average of 40% in volume. This suggests less demand for protections – a surprising development given the increased regulatory scrutiny following Binance’s settlement with the US Department of Justice (DOJ) and the US Securities and Exchange Commission’s lawsuit against the Kraken exchange.
While investors may not foresee disruptions to Binance services, the likelihood of further regulatory action against exchanges serving US customers has increased. Additionally, individuals who previously relied on concealment of their activities may now think twice as the DOJ gains access to historical transactions.
Additionally, it is uncertain whether the agreement that former CEO Changpeng “CZ” Zhao reached with authorities will extend to other unregulated exchanges and payment gateways. In conclusion, the impact of recent regulatory measures remains uncertain and the prevailing sentiment is bearish as investors fear additional restrictions and possible measures targeting market makers and stablecoin issuers.
To determine whether the Bitcoin options market represents an anomaly, we examine BTC futures contracts, particularly the monthly ones – favored by professional traders due to their fixed funding rate in neutral markets. Typically, these instruments trade at a premium of 5 to 10% to reflect the extended settlement period.
Between November 24th and 26th, the BTC futures premium flirted with excessive optimism, hovering around 12%. However, it fell to 9% by November 27 as Bitcoin price tested the $37,000 support – a neutral level but close to the upside threshold.
Retail traders are less bullish after ETF hopefuls fade.
As for retail investor interest, there is a growing sense of apathy due to the lack of a short-term positive 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.
The USDT premium against the yuan hit its lowest level in over four months on the OKX exchange. This premium serves as a gauge of demand among China-based crypto retailers and measures the gap between peer-to-peer stores and the US dollar.
Since November 20, USDT has been trading at a discount, indicating either a significant desire to liquidate cryptocurrencies or increased regulatory concerns. In both cases it is anything but a positive indicator. Additionally, the last positive premium of 1% occurred 30 days ago, suggesting that retail traders are not particularly enthusiastic about the recent rally towards $38,000.
Essentially, professional traders remain unfazed by short-term corrections, regardless of the regulatory landscape. Contrary to doomsday predictions, Binance’s status remains unaffected, and lower trading volume on unregulated exchanges could increase the chances of spot Bitcoin ETF approval.
The disparity in time horizons could explain the gap between the optimism of professional traders and retail investors. Additionally, recent regulatory actions could pave the way for greater participation from institutional investors and provide potential upside going forward.
This article is for general information purposes and is not intended as, and should not be construed as, legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect the views and opinions of AskFX.
