Crypto Market Shows Resilience Amid Regulatory Actions and Potential Sell Pressures
Summary:
Despite recent negative events, including Binance's $4 billion plea deal with US Authorities for violating money laundering and terror financing laws, the cryptocurrency market remains resilient. Accusations against the Kraken exchange by the U.S. Securities and Exchange Commission (SEC) and potentially unsettled news from Mt. Gox didn't impact the market significantly. Assets like Bitcoin and its derivatives display stability, undermining theories of a crypto market crash. Despite the unpredictability of the market, the path towards Bitcoin reaching $40,000 appears more convincing.
In defiance of expected severe negative impact due to recent events in the cryptocurrency market, Bitcoin (BTC) continues to trade around $37,000 as of November 22nd, maintaining its value from three days previous. This stability was not predicted in the face of Binance’s recent settlement agreement on November 21st with the US Government for breaking laws related to money laundering and financing of terrorism. Despite this potentially alarming news, Bitcoin's value seems largely unaffected.
Some are speculating that the price of Bitcoin may have been tampered with, possibly by the release of unsupported stablecoins, to dampen the potential shakeup. Particularly those stablecoins directly linked to the exchanges feeling the heat from regulators. To accurately gauge whether investors have become extremely cautious, one would need to look at Bitcoin's derivatives instead of basing conclusions only on current price points.
Indictments against Binance and Changpeng "CZ" Zhao, filed by the U.S. Government in Washington state on November 14th were unsealed on November 21st. CZ chose to distance himself from his management role at Binance after admitting to the charges. A total exceeding $4 billion in penalties were decreed, including fines placed on CZ personally. Despite this heavy news, a modest $50 million was triggered in BTC's leverage long futures contracts when the price of Bitcoin briefly fell to $35,600.
Of note on November 20th, the U.S. Securities and Exchange Commission (SEC) took legal action against the Kraken exchange. Accusations included mismanagement of customer funds and failure to register with the regulator as a securities broker, dealer, and clearing agent. The complaint also suggested Kraken had paid for operational expenses from accounts holding customer funds. Kraken, however, asserted that the alleged misuse of customer funds were in fact previously earned fees and hence their own resources.
On November 21st, another piece of potentially unsettling news surfaced from the now-defunct Bitcoin exchange, Mt. Gox, notorious for having lost 850,000 BTC to a hack in 2014. Nobuaki Kobayashi, the Mt. Gox trustee, announced the restoration of $47 million in trust assets and decided to kick off the first cash repayments to creditors in 2023. Despite no details regarding the sales of Bitcoin assets, investors are assuming this final phase is closer.
Seasoned traders and analysts on social media sites had been forecasting a crash in the crypto market if Binance ended up facing charges by the DoJ. A couple of examples are mentioned below, suggesting a widely shared belief among investors.
Crypto-enthusiast McKenna predicted Binance's indictment by the DoJ and added that the ongoing Bitcoin spot exchange-traded (ETF) fund applications will likely be declined by the SEC.
Somewhat surprisingly, Binance's compliance could increase the possibility of spot ETF approval, undermining the SEC's initial reasoning for rejection, the large volume market share on unregulated exchanges.
While the spot Bitcoin ETF has yet to reveal significant information regarding regulatory actions, amendments to several proposals suggest constructive dialogue with the SEC.
Bitcoin derivatives show stability
Bitcoin's price resilience should be explored in alignment with professional investors' risk assessment by examining BTC futures and options metrics. Traders may have sought to safeguard their positions, which wouldn't force the spot markets but could have a significant impact on BTC futures premium and options pricing.The price of Bitcoin's monthly futures contracts often differs from standard spot exchanges as traders normally require additional funds to delay the settlement.
Bitcoin's 3-month futures premium is currently at 8%, indicating a demand for leverage longs, but not excessively so. This rate is less than the 11.5% witnessed in mid-November but can be read as a positive signal considering the recent regulatory news flow.
BTC option markets also need to be studied to determine whether Bitcoin derivatives haven't undergone a significant influx of hedge operations. The 25% delta skew is a reliable barometer for when arbitrage desks and market makers overcharge for protection on the upside or downside.
Cautious optimism is suggested by the 25% delta skew of Bitcoin options for the past month since put (sell) options have been trading at a discount in comparison to similar call (buy) options. More crucially, the latest news didn't alter professional traders' inclination for hedging strategies.
Evidently, the impact of regulatory actions and potential selling pressure from Mt. Gox has had minimal effect on the crypto market due to the favorable mood indicated by derivatives. The clearance of $70 million leverage BTC longs has relieved the pressure of future negative price swings, so even a revisit to $35,000 would not be associated with excessive optimism.
With the final decisions on ETFs set for January and February, it seems unlikely that Bitcoin bears will influence the market when negative news has had no impact. In conclusion, it appears that the route to $40,000 is becoming clearer.
Disclaimer: This news article is not financial advice or a recommendation for any investment or trading action. All investments and trading moves involve risk, readers should rely on their own research to make their decisions.
Published At
11/22/2023 7:44:39 PM
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