Bitcoin’s bottom uncertain due to SEC lawsuit against Binance affecting BTC bulls’ confidence.
The price of Bitcoin went down by 5% in just an hour on June 5th after the US Securities and Exchange Commission (SEC) filed a lawsuit against Binance for allegedly violating federal securities laws. Although the support for Bitcoin held at $25,500, investors are still trying to understand the potential impacts of the regulatory action, which also involves Binance CEO Changpeng “CZ” Zhao.
According to Jeff Dorman, CEO of digital asset investment firm Arca, the direct impact of shutting down Binance operations in the US is not important. Moreover, non-criminal charges from past wrongdoings should not affect the current international structures of Binance. However, Arca’s CEO expects negative market sentiment to continue as the crypto community supports CZ and Binance.
My 2 sats on SEC vs Binance Mostly irrelevant since no one operates in the US anymore and a bunch of non-criminal charges for past wrongdoings don’t really matter. I see 2 actual negatives from this: ⬇️
— Jeff Dorman, CFA (@jdorman81) June 5, 2023
Binance is not the only pressing concern
Even if the SEC charges against Binance have little to no impact in the medium term, there’s additional uncertainty coming from Digital Currency Group (DCG) and its subsidiary Genesis Capital, which filed for Chapter 11 bankruptcy on Jan. 19.
looks like a dcg portco -manages ~3b of silbert’s personal holdings -lent genesis 1b -pulled 1b coincident w/ 3ac default / dcg note -has ~ no clients other than barry its v clear nobody else reads these filings carefully the stonewalling makes sense! https://t.co/7NgFnUkmp1
— Data Finnovation (@DataFinnovation) June 4, 2023
According to Jon Reiter, CEO of Data Finnovation and ChainArgos, DCG CEO Barry Silbert pulled $1 billion out of his personal holdings just as cryptocurrency hedge fund Three Arrows Capital defaulted. While this could have been a coincidence, it certainly draws even more attention to the intercompany loans and deals inside DCG.
Traders now question whether Bitcoin ( BTC ) will test the $25,000 resistance, a level unseen since March 17. Considering that the U.S. debt ceiling crisis has been averted, the odds for a surprise Bitcoin price rally seem even more unlikely in the short term.
Investors should be especially attentive if Bitcoin futures contract premiums flip negative or if increased costs for hedging using BTC options occur.
Bitcoin derivatives markets show a mixed reaction
Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.
As a result, BTC futures contracts in healthy markets should trade at a 5 to 10% annualized premium — a situation known as contango, which is not unique to crypto markets.
Bitcoin traders have been rather cautious since June 1, as the futures premium remained below 4%. On the other hand, the indicator stood at 3.5% after the SEC charges against Binance came to light on June 5.
Traders should also analyze options markets to understand whether the recent correction has caused investors to become more optimistic. The 25% delta skew is a telling sign of when arbitrage desks and market makers overcharge for upside or downside protection.
Simply put, if traders anticipate a Bitcoin price drop, the skew metric will rise above 7%, and phases of excitement tend to have a negative 7% skew.
Related: Fines and regulation, The ever-growing landscape of crypto compliance
As shown above, the BTC options 25% delta skew indicates that traders have suddenly become bearish, as the indicator spiked to 11% on June 5. This level was the highest in three months and signals discomfort from professional traders.
The bear trend continues while fear, uncertainty, and doubt prevail
Basically, based on Bitcoin options and futures markets, the bear trend that started after the unsuccessful attempt to reach $31,000 on April 14th is still ongoing, although there hasn’t been any significant negative impact on the overall market structure. However, it may be too soon to interpret the potential consequences of the SEC’s actions, and court rulings usually take months — if not years — to resolve.
Therefore, those who are betting on a Bitcoin price increase should lower their expectations because investors don’t like uncertainty.
As long as there is no further clarity on the DCG-Genesis situation and Binance’s ability to operate in the tougher U.S. regulatory environment, there is less reason for long-term buyers to step in and protect the critical $25,000 support level.