On March 27, the price of Bitcoin (BTC) experienced a 3.6% drop to $26,900 following the announcement that the United States Commodity Futures Trading Commission (CFTC) was suing leading cryptocurrency exchange Binance and its CEO, Changpeng “CZ” Zhao, for regulatory violations. The exchange has been under investigation by various US regulatory authorities, including the Securities and Exchange Commission (SEC), the Internal Revenue Service, and federal prosecutors. Despite the news, Bitcoin’s correction was limited, possibly due to Silicon Valley bank’s successful asset sale to First Citizens BancShares at a discount, which received a credit line from the Federal Deposit Insurance Corporation (FDIC) to compensate for any future losses.
On the same day, oil prices rose by 5% after Russian President, Vladimir Putin, escalated geopolitical tensions in Europe by announcing plans to station tactical nuclear weapons in neighboring Belarus to intimidate opposing countries regarding their support for Ukraine. Another crypto industry controversy emerged when a US Federal Judge temporarily halted the sale of Voyager Digital to Binance.US. Judge Jennifer Rearden granted the request for an emergency stay of the proposed sale.
While investors might be concerned about the impact of such controversies on Bitcoin futures and options, the indicators appear to be unfazed. Experts suggest a few reasons why this might be the case.
Bitcoin Quarterly Futures
Bitcoin quarterly futures are popular among whales and arbitrage desks that trade slightly above spot markets, indicating that sellers demand more money to delay settlement for a more extended period. Futures contracts trade at a 5% to 10% annualized premium, which is called contango, and is not unique to the crypto market. Compared to neutral 5% thresholds, the Binance news had little effect on the 2-month contract premium, which stands at 3.5%. Despite holding 33% of the $11.2 billion open interest, the Bitcoin futures premium remains unaffected. The absence of demand for leverage longs does not necessarily represent a decline in price. Thus, traders must investigate Bitcoin options markets to learn how whales and market makers value the likelihood of future price movements.
Bitcoin Options Traders
The 25% delta skew is an essential indicator that shows when market makers and arbitrage desks overcharge for upside or downside protection. In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 8%. On the other hand, bullish markets tend to drive the skew metric below -8%, meaning bearish put options are in less demand. The 25% skew ratio currently stands at -5, indicating that protective put options trade at a slight discount. This confirms the irrelevance of the Binance news, and more importantly, that the CFTC action had no impact on the 25% skew. Therefore, whales and market markets aren’t pricing in any market structure change.
What Doesn’t Kill You Makes You Stronger
The fact that the derivatives indicators had minimal impact might be due to the “remote misses” phenomenon, where analysts and pundits evaluate the odds of Binance and CZ receiving anything more than a million-dollar fine or some term of conduct adjustment. This psychological distortion was first observed during World War II in London, where survivors who did not face imminent losses became more confident and less likely to feel traumatized. The market is unlikely to price in higher odds of extreme volatility until those whales and arbitrage desks face more than a 3.5% price correction.
This article does not provide investment advice or recommendations. All investment and trading move comes with risks, and readers should conduct their own research before making decisions. The views, thoughts, and opinions expressed here are those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
