Key Bitcoin options “fear” indicator reflects traders’ regulatory concerns


After trading above 42,000 USD for 46 consecutive days, Bitcoin (Bitcoin) Prices started to weaken on September 21. In the past three days, the accumulated loss of 13% was enough to erase the hard-won gains since August 6. History also shows that the previous bear market cycle took 79 days to regain the most important $42,000 level.

Traders’ attention turned to the beginning of the Fed’s currency meeting, where the financial authorities are expected to indicate whether they will reduce the $120 billion monthly asset repurchase stimulus plan. Strangely, as all this happened, the Chinese stock market as measured by iShares MSCI China ETF ($MCHI) rebounded 1% on September 21.

Is China really the source of recent adjustments?

The apparent disconnect between Bitcoin’s performance and the small recovery in global markets has led investors to question whether cryptocurrency regulation is playing a role in the current bearish scenario.

Chairman of U.S. Securities Commission (SEC) Today Gary Gensler In an interview with The Washington Post, he said that stablecoin tools can be used on “casino gaming tables.”

As attorney Grant Gulovsen pointed out, the upcoming regulatory shadow is expected to have a short-term bearish impact, and investors in any market hate uncertainty about which products and services will be allowed.

Coinbase’s Bitcoin price (in U.S. dollars). Source: TradingView

Please note that the $42,000 level is crucial in determining the end of the mini bear market cycle Bitcoin mining energy use May 12th.

In order to effectively measure how professional traders price the risk of further price plunges, investors should monitor a 25% delta skew, which compares similar call (buy) and put (sell) options side by side. When the premium of a protective put option is higher than that of a call option of similar risk, it will become positive.

Skew indicators that swing between -7% and +7% are usually considered neutral. On the other hand, whenever the cost of downside protection is higher, the indicator will be higher than this range, usually a “fear” indicator.

Deribit Bitcoin options 25% delta skew.Source: Lavitas

As shown above, Bitcoin options traders have remained neutral since July 25, when the indicator fell below the 7% threshold. However, recent price movements have caused short-term option traders to enter a “fear” mode after the indicator reaches 9%.

related: The U.S. Department of the Treasury sanctions Suex, an encrypted OTC broker, on the grounds that it is suspected of facilitating ransomware attacks

The options market confirms investor lack of confidence

In order to eliminate the unique externalities of this option tool, the perpetual futures market should also be analyzed.

Unlike regular monthly contracts, perpetual futures prices are very similar to those on regular spot exchanges. This feature makes life easier for retail traders, as they no longer need to calculate futures premiums or manually rollover positions as they approach expiration.

The financing interest rate is introduced to balance the risk exposure of the exchange. When the longs (buyers) require more leverage, they will be charged. However, when the situation reverses and the shorts (sellers) become over-leveraged, the funding interest rate becomes negative, so they become the ones who pay the fees.

Bitcoin 8-hour USDT/USD margin futures financing interest rate. Source: Bybt

The graph above shows that, despite being unsustainable or irrelevant, Bitcoin’s funding rate continues to turn negative. For example, a rate of 0.05% charged every 8 hours is equivalent to 1% per week, which should not force any derivatives traders to close their positions.

Therefore, the option market data validates the “fear” indicator from positive 25% delta option skew. Buyers using the derivatives market lack confidence, which may be related to recent negative regulatory concerns.The latest victim of regulatory pressure comes from Coinbase Exchange’s decision to avoid offering Crypto lending plan.

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