The “fear” indicator for major Bitcoin options reflects regulatory concerns
After 46 consecutive days of trading above $ 42,000, Bitcoin (BTC) price began to show weakness on September 21st. For the past three days, the cumulative loss of 13% was enough to erase the hard-earned profit. also shows that it took the previous bear cycle 79 days to regain the key level of $ 42,000.
Traders’ attention is focused on the start of the Fed’s currency meeting, when the Treasury is expected to announce whether it will cut its buyback program. $ 120 billion in monthly assets or not. Oddly enough, the Chinese stock market, as measured by the iShares MSCI China ETF ($ MCHI), rebounded 1% on September 21.
Is China Really the Root of the Recent Correction?
The apparent discrepancy between Bitcoin’s performance and the mild global market recovery has made investors question whether or not crypto regulation will play a role in the current bearish scenario.
Today the chairman of the US Securities and Exchange Commission, Gary Gensler, spoke to the Washington Post and mentioned in the interview stablecoin tools for use at “casino gaming tables”.
Complain. The U.S. regulation against crypto that has gone into effect in the past six months looks like it’s getting worse and worse every week. Not even sure about its impact on the market, but certainly not much to be optimistic about.
– Grant Gulovsen, Esq. (@gulovsen) September 19, 2021
As attorney Grant Gulovsen noted, the shadow of regulation is expected to have a short-term downside effect and investors in any market hate the uncertainty about the products and services available.
Note how important $ 42,000 was in determining the end of the mini-bear cycle that should begin with Elon Musk’s comment on Bitcoin mining’s power consumption on May 12th.
To effectively measure how professional traders price the risk of further price erosion, investors should observe the 25% delta deviation and compare similar call (buy) and put (sell) options in parallel. It becomes positive if the protective put premium is higher than with similar risky call options.
A skew indicator that fluctuates between -7% and + 7% is generally considered neutral. On the other hand, if a downside hedge is more expensive, the indicator changes above this range, usually a “fear” indicator.
As shown above, Bitcoin options traders have been neutral since July 25th when the indicator fell below the 7% threshold. However, recent price action put short-term options traders in a state of “fear” after the index hit 9%.
Related: The U.S. Treasury Department sanctions OTC crypto broker Suex for allegedly playing a role in facilitating transactions for ransomware attacks
Options market confirms lack of investor confidence
In order to exclude specific external effects for this option instrument, one should also analyze the eternal futures market.
In contrast to regular monthly contracts, the prices for perpetual futures are very similar to the prices on regular spot exchanges. This feature makes the life of retailers a lot easier as they no longer have to manually calculate futures premiums or roll positions just before they expire.
The funding rate is provided to offset the level of risk on the exchange and is calculated by the buyer (buyer) when he needs more leverage. However, if the situation is reversed and the short positions (sellers) are too indebted, the funding rate becomes negative and they become premium payers.
The graph above shows that Bitcoin’s funding rate has become consistently negative, albeit not sustainable or irrelevant. For example, 0.05% interest charged every 8 hours equals 1% per week, which does not force derivatives traders to close out their positions.
Thus, the option market data that confirms the “fear” indicator comes from a positive 25% delta option deviation. Buyers using the derivatives market are lacking in confidence, which could be related to recent negative regulatory concerns. The latest victim of regulatory pressure is the Coinbase exchange’s decision to block a proposed crypto lending program.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement carries risks. You should do your own research when making a decision.
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Bitcoin
The “fear” indicator for major Bitcoin options reflects regulatory concerns
After 46 consecutive days of trading above $ 42,000, Bitcoin (BTC) price began to show weakness on September 21st. For the past three days, the cumulative loss of 13% was enough to erase the hard-earned profit. also shows that it took the previous bear cycle 79 days to regain the key level of $ 42,000.
Traders’ attention is focused on the start of the Fed’s currency meeting, when the Treasury is expected to announce whether it will cut its buyback program. $ 120 billion in monthly assets or not. Oddly enough, the Chinese stock market, as measured by the iShares MSCI China ETF ($ MCHI), rebounded 1% on September 21.
Is China Really the Root of the Recent Correction?
The apparent discrepancy between Bitcoin’s performance and the mild global market recovery has made investors question whether or not crypto regulation will play a role in the current bearish scenario.
Today the chairman of the US Securities and Exchange Commission, Gary Gensler, spoke to the Washington Post and mentioned in the interview stablecoin tools for use at “casino gaming tables”.
Complain. The U.S. regulation against crypto that has gone into effect in the past six months looks like it’s getting worse and worse every week. Not even sure about its impact on the market, but certainly not much to be optimistic about.
– Grant Gulovsen, Esq. (@gulovsen) September 19, 2021
As attorney Grant Gulovsen noted, the shadow of regulation is expected to have a short-term downside effect and investors in any market hate the uncertainty about the products and services available.
Note how important $ 42,000 was in determining the end of the mini-bear cycle that should begin with Elon Musk’s comment on Bitcoin mining’s power consumption on May 12th.
To effectively measure how professional traders price the risk of further price erosion, investors should observe the 25% delta deviation and compare similar call (buy) and put (sell) options in parallel. It becomes positive if the protective put premium is higher than with similar risky call options.
A skew indicator that fluctuates between -7% and + 7% is generally considered neutral. On the other hand, if a downside hedge is more expensive, the indicator changes above this range, usually a “fear” indicator.
As shown above, Bitcoin options traders have been neutral since July 25th when the indicator fell below the 7% threshold. However, recent price action put short-term options traders in a state of “fear” after the index hit 9%.
Related: The U.S. Treasury Department sanctions OTC crypto broker Suex for allegedly playing a role in facilitating transactions for ransomware attacks
Options market confirms lack of investor confidence
In order to exclude specific external effects for this option instrument, one should also analyze the eternal futures market.
In contrast to regular monthly contracts, the prices for perpetual futures are very similar to the prices on regular spot exchanges. This feature makes the life of retailers a lot easier as they no longer have to manually calculate futures premiums or roll positions just before they expire.
The funding rate is provided to offset the level of risk on the exchange and is calculated by the buyer (buyer) when he needs more leverage. However, if the situation is reversed and the short positions (sellers) are too indebted, the funding rate becomes negative and they become premium payers.
The graph above shows that Bitcoin’s funding rate has become consistently negative, albeit not sustainable or irrelevant. For example, 0.05% interest charged every 8 hours equals 1% per week, which does not force derivatives traders to close out their positions.
Thus, the option market data that confirms the “fear” indicator comes from a positive 25% delta option deviation. Buyers using the derivatives market are lacking in confidence, which could be related to recent negative regulatory concerns. The latest victim of regulatory pressure is the Coinbase exchange’s decision to block a proposed crypto lending program.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement carries risks. You should do your own research when making a decision.
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.
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