The United States Securities and Exchange Commission (SEC) filing a lawsuit against Binance, including its CEO Changpeng “CZ” Zhao, on the grounds of breaching federal securities laws saw Bitcoin’s price fall 5% within an hour on June 5th. Despite the $25,500 support for Bitcoin remaining intact, investors are still evaluating the potential consequences of the regulatory action.
According to Jeff Dorman, CEO of digital asset investment firm Arca, the potential closure of Binance operations in the U.S. would have no significant effect. Moreover, Dorman believes that any non-criminal charges from the past should not disrupt Binance’s international operations currently. Nevertheless, he foresees that the crypto community’s support of CZ and Binance will be overshadowed by negative market sentiment.
Binance is not the only pressing concern
Even though the SEC charges against Binance may not have much of an effect in the long run, there is additional uncertainty stemming from Digital Currency Group (DCG) and its subsidiary Genesis Capital, which declared bankruptcy on January 19th.
According to Jon Reiter, CEO of Data Finnovation and ChainArgos, Barry Silbert, CEO of DCG, withdrew an amount of $1 billion from his personal assets precisely when cryptocurrency hedge fund Three Arrows Capital went into default. This could have just been a coincidence, but it surely intensifies the scrutiny of the internal loans and agreements within DCG.
Traders are now wondering if Bitcoin (BTC) will reach the $25,000 threshold, a level not seen since March 17. Given that the U.S. debt ceiling issue has been resolved, it appears unlikely that Bitcoin will experience a sudden surge in price in the near future.
Investors should take extra caution if Bitcoin futures contract premiums turn negative or if the expenses of hedging using BTC options increase.
Bitcoin derivatives markets show a mixed reaction
Quarterly futures of Bitcoin are favored by whales and arbitrage desks. Nevertheless, these fixed-month contracts usually trade at a slight premium compared to spot markets, showing that sellers are asking for additional funds to postpone settlement.
Consequently, BTC futures contracts in healthy markets should be trading at a 5 to 10% annualized premium – a state of affairs referred to as contango, which is not exclusive to crypto markets.
Since June 1, Bitcoin traders have been quite wary, as the futures premium stayed under 4%. However, the indicator was at 3.5% after the SEC’s charges against Binance were made public on June 5.
Traders should also examine the options markets to determine if the recent correction has made investors more hopeful. A 25% delta skew is an indication that arbitrage desks and market makers are charging too much for either downside or upside protection.
If traders expect Bitcoin prices to decline, the skew metric will exceed 7%, and periods of enthusiasm usually have a negative skew of 7%.
Fines and regulations concerning the continually advancing field of cryptocurrency compliance.
As is evident from the BTC options 25% delta skew, traders abruptly became pessimistic when the indicator rose to 11% on June 5. This was the most elevated in three months and conveys uneasiness from experienced traders.
The bear trend continues while FUD prevails
Essentially, the Bitcoin options and futures markets point to the bear trend that has been in place since the failed $31,000 test on April 14 continuing, with no major changes in the overall market structure. However, it is too soon to gauge the potential repercussions of the SEC’s actions, as court decisions can take months or even years to be finalized.
Therefore, those who are gambling on a Bitcoin rally should modify their anticipations since investors detest unpredictability.
Until the details of the DCG-Genesis situation and Binance’s ability to function under the stricter U.S. regulations become clearer, there is less of an incentive for long-term investors to come in and maintain the essential $25,000 support.
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