On June 5, Bitcoin’s price fell by 5% in just one hour after the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against Binance for allegedly violating federal securities laws. Even though Bitcoin’s $25,500 support held up, investors are still processing the potential effects of the regulatory action, which also involves Binance CEO Changpeng “CZ” Zhao.
Jeff Dorman, the CEO of digital asset investment firm Arca, believes that even if Binance’s operations in the U.S. eventually shut down, the direct impact on Bitcoin’s price will be insignificant. Furthermore, non-criminal charges from the past should not destabilize Binance’s international structures. But Dorman expects negative market sentiment to continue as the crypto community supports CZ and Binance.
Uncertainty in Bitcoin Market
Apart from the SEC’s lawsuit against Binance, there is additional uncertainty in the market due to Digital Currency Group (DCG) and its subsidiary Genesis Capital filing for Chapter 11 bankruptcy on January 19. According to Jon Reiter, the CEO of Data Finnovation and ChainArgos, DCG CEO Barry Silbert withdrew $1 billion from his personal holdings just as cryptocurrency hedge fund Three Arrows Capital defaulted. While this could have been a coincidence, it draws even more attention to the intercompany loans and deals inside DCG.
Traders are now questioning whether Bitcoin will test the $25,000 resistance level, which has not been seen since March 17. Considering that the U.S. debt ceiling crisis has been averted, the chances of a surprise Bitcoin price rally seem even more unlikely in the short term. Investors should pay close attention if Bitcoin futures contract premiums flip negative or if the cost of hedging using BTC options increases.
Bitcoin quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts usually trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement. Therefore, BTC futures contracts in healthy markets should trade at a 5 to 10% annualized premium, which is a situation known as contango and is not unique to crypto markets.
Bitcoin traders have been cautious since June 1, as the futures premium remained below 4%. On the other hand, the indicator stood at 3.5% after the SEC filed charges against Binance 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. 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. According to the BTC options 25% delta skew, traders suddenly turned bearish, as the indicator spiked to 11% on June 5. This level was the highest in three months and signals discomfort from professional traders.
In summary, Bitcoin options and futures markets imply that the bear trend that began after the failed $31,000 test on April 14 is continuing, although there has been no significant fallout in the overall market structure. It might be too early to interpret the potential consequences of the SEC’s actions, and court rulings may take months or even years to settle. As a result, those who are betting on a Bitcoin bull run should adjust their expectations because investors dislike uncertainty. Until there is more clarity on the DCG-Genesis situation and Binance’s operational capability amid the tougher U.S. regulatory environment, there is less incentive for long-term buyers to step in and defend the all-important $25,000 support.