Bitcoin (BTC) briefly touched $38,000 on November 24 but faced strong resistance at the price level. On November 27, the price of Bitcoin fell below $37,000, which was the same as a week ago.
What’s striking is the strong momentum in BTC derivatives, which suggests bulls’ intentions remain firm.
An interesting development is emerging in China as Tether (USDT) trades below its fair value in yuan terms. This discrepancy often arises from differences in expectations between professional traders working in derivatives and retail clients participating in spot markets.
How does regulation affect Bitcoin derivatives?
To measure the exposure of whales and arbitrage platforms to Bitcoin derivatives, Bitcoin options trading volume must be assessed. By examining put (sell) and call (buy) options, we can estimate the current bullish or bearish sentiment.
Since Nov. 22, put volume has lagged call options by an average of 40%. This suggests there is less need for protective measures – a surprising development considering the heightened regulatory scrutiny after Binance filed a lawsuit against the Kraken exchange with the U.S. Department of Justice (DoJ) and the U.S. Securities and Exchange Commission (SEC).
While investors may not foresee any disruption to Binance’s services, the likelihood of further regulatory action against the exchange serving U.S. customers has risen significantly. Additionally, as the U.S. Department of Justice gains access to historical transactions, individuals who previously relied on concealing their activities may now think twice about doing so.
Additionally, it is uncertain whether the arrangements Changpeng Zhao “CZ” has with the authorities will extend to other unregulated exchanges and payment gateways. Overall, the impact of recent regulatory actions remains uncertain, with general sentiment pessimistic and investors concerned about additional restrictions and potential actions against market makers and stablecoin issuers.
To determine if the Bitcoin options market is an anomaly, let’s examine Bitcoin futures contracts, specifically the monthly contracts – favored by professional traders due to their fixed funding rates in a neutral market. Typically, these instruments trade at a premium of 5% to 10%, taking into account the extended settlement period.
Between November 24 and 26, Bitcoin futures premium hovered around 12%. However, by November 27, Bitcoin price fell to 9% as it tested support at $37,000 (a neutral level, but close to the bullish threshold).
Retail traders less optimistic as ETF enthusiasm fades
Turning to retail interest, there is growing apathy due to the lack of short-term positive triggers such as the potential approval of a spot Bitcoin exchange-traded fund (ETF). The SEC is not expected to make a final decision until January or February 2024.
The premium of USDT to the yuan on OKX exchange hit its lowest in more than four months. This premium serves as a gauge of demand among retail cryptocurrency traders in China and measures the gap between peer-to-peer trading and the U.S. dollar.
USDT has been trading at a discount since November 20, indicating either a strong desire to liquidate the cryptocurrency or heightened regulatory concerns. Either way, it’s far from a positive indicator. Furthermore, the last positive 1% premium occurred 30 days ago, suggesting that retail traders are not particularly enthusiastic about the recent move to $38,000.
related: What’s next for Binance’s Changpeng “CZ” Zhao?
Essentially, professional traders are immune to short-term corrections, regardless of the regulatory environment. Contrary to doomsday predictions, Binance’s position remains unaffected, and lower trading volumes on the unregulated exchange could increase the chances of a spot Bitcoin ETF being approved.
The difference in time horizons may explain the divergence between optimism among professional traders and retail investors. Additionally, recent regulatory actions could pave the way for increased participation from institutional investors, providing potential upside going forward.
This article is for general information purposes only and is not intended to be, and should not be construed as, legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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