Bitcoin price holds steady in wake of CFTC case against Binance
The price of Bitcoin (BTC) fell 3.6% to $26,900 after Binance and CEO Changpeng “CZ” Zhao were sued by the United States Commodity Futures Trading Commission (CFTC) on March 27. To date, Binance has been investigated by the CFTC, the US Securities and Exchange Commission (SEC), the Internal Revenue Service and federal prosecutors.
The Bitcoin price correction may have been limited by the Silicon Valley bank’s successful sale of assets to First Citizens BancShares at a $16.5 billion discount, which received an extraordinary line of credit from the Federal Deposit Insurance Corporation (FDIC) to offset potential future losses.
Oil prices also rose 5% on March 27 after Russian President Vladimir Putin escalated geopolitical tensions in Europe. According to Yahoo!Finance, Russia plans to station tactical nuclear weapons in neighboring Belarus, in a move designed to intimidate opposing countries over their support for Ukraine.
Further excitement from the crypto industry arose after a US federal judge decided to temporarily halt the proposed sale of Voyager Digital to Binance.US. on March 27. Judge Jennifer Rearden of the US District Court in New York granted the request for an emergency stay.
Let’s examine Bitcoin derivatives calculations to determine the current market position of professional traders.
Bitcoin futures show no impact from CFTC-Binance case
Quarterly bitcoin futures are popular with whales and arbitrage desks, which typically trade at a small premium to spot markets, indicating sellers are asking for more money to delay settlement for a longer period.
As a result, futures contracts in healthy markets should trade at a premium of 5% to 10% on an annual basis – a situation known as contango, which is not unique to crypto markets.
The Binance news had no effect on the Bitcoin futures premium, despite the exchange holding 33% of open interest at $11.2 billion. The 2-month contract premium is 3.5%, which is less than the neutral 5% threshold. Had there been any panic selling using leveraged futures contracts, the indicator would have quickly moved to 0 or even negative.
The absence of demand for leveraged longs does not necessarily mean a price decline. As a result, traders should examine Bitcoin’s options markets to determine how whales and market makers value the probability of future price movements.
Bitcoin options traders remain somewhat optimistic
25% delta bias is a clear sign that shows when market makers and arbitrage tables are overcharging for upside or downside protection. In bear markets, option investors place higher odds on a price dump, causing the bias indicator to rise above 8%. On the other hand, bullish markets tend to drive the bias metric below -8%, meaning the bearish put options are less in demand.
The 25% skew ratio stands at -5, indicating that the protective put options are trading at a slight discount, confirming the irrelevance of the Binance news. More importantly, the CFTC action had no effect on the 25% bias, so whales and market markets are not pricing in any meaningful change in market structure.
Related: Bitcoin price will reach this key level before $30,000, survey says
What doesn’t kill you makes you stronger
The fact that derivative indicators were barely affected could be the effect of “long misses” as analysts and pundits weigh the odds of Binance and CZ getting anything more than a million dollar fine and some behavioral adjustment.
This type of psychological distortion was first observed in London during World War II, when survivors who did not face imminent loss became even more confident and less likely to feel traumatized.
It seems unlikely that the market will price in higher odds of extreme volatility until these whales and arbitrage tables face more than a 3.5% price correction.
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
