A Bitcoin (BTC) price pullback to $22,000 is becoming more likely as BTC derivatives begin to exhibit a bearish trend.
Bitcoin’s price charts leave no doubt that since Grayscale’s much-hyped legal victory against the SEC on Aug. 29 and the SEC’s subsequent delay of multiple spot BTC exchange-traded fund (ETF) requests , investor sentiment has deteriorated.
The central question remains whether the ETF’s prospects can outweigh the growing risks.
Spot Bitcoin ETF Hype Is Fading
By Aug. 18, the 19% gain seen after the BlackRock ETF’s initial filing had been fully pared back as Bitcoin rallied back to $26,000
Next, after positive news of the Grayscale Bitcoin Trust request, investors raised the odds of an ETF approval in an unsuccessful attempt to reclaim support at $28,000.
Morale among cryptocurrency investors has soured, with the S&P 500 closing at 4,515 on Sept. 1, just 6.3% below its all-time high from January 2022. Even gold, which has failed to breach the $2,000 level since mid-May, is 6.5% shy of its all-time high. So with just 7 months until the 2024 halving, the general feeling among Bitcoin investors is certainly less positive than expected.
Some analysts have blamed bitcoin’s underperformance on ongoing regulatory action against two leading exchanges, Binance and Coinbase. Additionally, multiple sources say that the U.S. Department of Justice (DOJ) may indict Binance in a criminal investigation. The charges are based on allegations of money laundering and possible sanctions violations involving Russian entities.
Related: Weekly Closing Risks BTC Price ‘Double Top’ – 5 Things to Know About Bitcoin This Week
Pentoshi, chief investment officer at North Node Capital and a bitcoin proponent, expressed the current state of affairs in a post on X (formerly Twitter):
I think we’ll still end up with some bad news from Binance and the DOJ. This should be considered an opportunity!
But overall. We may also get ETFs this year or early next year, $btc Go to 401k
As I said before, this year is a year of accumulation. don’t ignore…
— Pentoshi euroPeng (@Pentosh1) September 1, 2023
Pentoshi said the potential gains from spot ETF approvals outweighed the price impact of regulatory action against exchanges. There is no way to be sure that this assumption is valid, but this analysis does not take into account that US inflation, as measured by the Consumer Price Index, has fallen from 9.1% in June 2022 to 3.2% in July 2023.
Additionally, the Fed’s total assets have fallen from a peak of $8.73 in March 2023 to $8.12 trillion. This suggests that monetary authorities have been draining liquidity from the market, which is not conducive to Bitcoin’s inflation protection thesis.
On a longer-term basis, bitcoin’s price has remained at the $25,000 level since mid-March, but a closer look at derivatives data suggests bulls’ faith is being tested.
Bitcoin derivatives show falling demand from bulls
Monthly bitcoin futures typically trade at a slight premium to the spot market, suggesting sellers are asking for more money to delay settlement. Therefore, BTC futures contracts in a healthy market should trade at an annualized premium of 5% to 10%, a condition known as contango, which is not unique to the cryptocurrency market.
Bitcoin’s current 3.5% contango (basis) is at its lowest since mid-June (before BlackRock’s spot ETF application). The indicator reflects falling demand from leveraged buyers who take advantage of derivatives contracts.
Traders should also analyze the options market to see if the recent correction has caused investors to become less bullish. A delta bias of 25% is a telltale sign when arbitrage desks and market makers charge too much for upside or downside protection.
In short, if a trader expects the price of Bitcoin to fall, the bias indicator will rise above 7%, while the euphoria phase tends to have a negative bias of 7%.
As shown above, the 25% delta bias in options has recently moved into bearish territory, with the protective put (sell) option trading at a 9% premium on September 4th compared to a similar call (buy) option.
BTC Futures Hint at $22,000 Next
Bitcoin derivatives data suggests that the bearish momentum is building, especially given the SEC’s concerns about the lack of measures to prevent the majority of trading from taking place on unregulated offshore exchanges, so the approval of spot ETFs may be delayed until 2024. stablecoins.
At the same time, the uncertain regulatory environment does work in favor of the bears, as the fear, uncertainty and doubt surrounding possible actions by the DOJ or ongoing SEC lawsuits against exchanges cannot be dispelled.
Related: Bitcoin ETF Applications: Who’s Filing and When the SEC Will Make a Decision
Ultimately, the most likely scenario is a retracement to $22,000 (the level seen the last time Bitcoin futures were at a 3.5% contango) as the near-term inability to maintain a positive outlook despite the likelihood of a spot Bitcoin ETF being approved price momentum.
This article is for general informational purposes only and is not intended and should not be construed as legal or investment advice. The views, ideas and opinions expressed here are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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