After 46 consecutive days of over $ 42,000 worth of trading, the bitcoin (BTC) price began to show weakness on September 21st. Over the past three days, the cumulative 13% loss has been enough to wipe out hard-earned gains since August 6. Historians also show that the previous bearish cycle took 79 days to recover from the crucial $ 42,000 level.
The trader’s attention turned to the start of a monetary meeting at the US Federal Reserve, in which the fiscal authority is expected to indicate whether it will cut its monthly stimulus program by $ 120 billion. Ironically, despite all this, the Chinese stock markets, according to the iShares MSCI China ETF ($ MCHI), rose 1% on September 21.
Is China Really the Source of the Latest Correction?
The apparent link between Bitcoin’s performance and the weak upturn in global markets has led investors to question whether cryptocurrency regulation plays a role in the current bearish scenario.
On September 22, Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC) spoke to The Washington Post and asked during an interview about the use of stackcoin tools on “casino gaming tables.”
As lawyer Grant Golovsen noted, threatening regulatory shadows are expected to have a short-term bearish effect, and investors in any market are not inclined to be skeptical of the permitted products and services.
Bitcoin price in USD on Coinbase. Source: TradingView
Notice how the $ 42,000 level was pivotal to mark the end of the little bear cycle, which was supposed to begin with Elon Musk’s comments on the use of bitcoin mining on May 12th.
To gauge how effective professional traders are in assessing the risk of price collapse, investors should track the 25% delta deviation, which compares buy (buy) and put (sell) options next to each other. It becomes positive when the premium on protective put options is higher than on similar risky calls.
A skewed indicator that ranges from -7% to + 7% is generally considered neutral. On the other hand, the scale shifts in this range, more expensive passive protection is usually an indicator of “fear”.
Delta Deviation Deribit Options 25%. Source: Laevitas
As shown above, bitcoin options traders have remained neutral since July 25, when the index fell below the 7% threshold. However, the recent price movement forced short-term options traders to enter fear mode after the scale reached 9%.
Related: US Treasury sanctions OTC cryptocurrency broker Suex for its alleged role in facilitating transactions for ransomware attacks
Alternative Markets Confirm Investors Are Not Convinced
To eliminate externalities of this option instrument, it is also necessary to analyze the perpetual futures markets.
Unlike regular monthly contracts, perpetual futures prices are very similar to those on regular spot exchanges. This feature makes life much easier for retailers as they no longer need to calculate the futures premium or manually roll over positions when they expire.
Funding prices are introduced to offset the risks of the stock market and charged to long positions (buyers) when they require more leverage. But when the situation changes and the number of dealers (suppliers) increases, the funding rate becomes negative, so they pay commissions.
USDT / USD 8 Hours Forward Margin Rate for Bitcoin. Source: Bybt
The chart above shows that the bitcoin funding rate has been constantly moving upside down despite being volatile and irrelevant. For example, a 0.05% rate every eight hours equals 1% per week, which should not force a derivatives trader to close a position.
Thus, the options market data confirms a future fear indicator for a positive delta deviation of 25%. It is not certain that buyers are using derivatives markets, which is likely due to recent negative regulatory issues. The latest victim of regulatory pressure was Coinbase Exchange’s decision to step up plans to offer a crypto loan program.