Bitcoin (BTC) briefly reached $38,000 on November 24, but faced tremendous resistance at that price level. On November 27, the price of Bitcoin was trading below $37,000, unchanged from a week ago.
What is eye-catching is the unwavering strength of BTC derivatives, a sign that the bulls remain steadfast in their intentions.
An interesting development is unfolding in China as Tether (USDT) is trading below its fair value in terms of the local currency, the Yuan. This mismatch often arises because of different expectations between professional traders engaged in derivatives and retail customers participating in spot markets.
How have regulations affected Bitcoin derivatives?
To measure the exposure of whales and arbitrage desks using Bitcoin derivatives, you need to evaluate BTC options volume. By examining put (sell) and call (buy) options, you can estimate the prevailing bullish or bearish sentiment.
Since November 22nd, put option trading volume has consistently lagged call option trading volume by about 40% on average. This suggests that demand for protective measures has decreased. This is a surprising development considering Binance’s heightened regulatory scrutiny following its plea deal with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission’s lawsuit against the Kraken exchange.
Investors may not be expecting a Binance service outage, but the likelihood of further regulatory action against exchanges serving US customers has skyrocketed. Additionally, individuals who previously relied on concealing their activities may have second thoughts now that the DOJ has access to their past transactions.
Moreover, it is unclear whether the agreement reached by former CEO Changpeng “CZ” Zhao with authorities will be extended to other unregulated exchanges and payment gateways. In summary, the impact of recent regulatory actions remains uncertain and the prevailing sentiment is pessimistic. Investors fear additional restrictions and potential actions targeting market makers and stablecoin issuers.
To determine whether the Bitcoin options market is unusual, let’s take a look at BTC futures contracts, specifically the monthly contracts favored by professional traders due to their fixed funding rates in neutral markets. Typically, these products trade at a premium of 5% to 10% to take into account extended payment terms.
From November 24 to 26, BTC futures premiums hovered around 12%, fueling excessive optimism. However, on November 27, Bitcoin price fell by 9%, testing the $37,000 support level. This is a neutral level, but close to a bullish threshold.
Retail traders are less optimistic after ETF Hopium disappears.
Moving on to retail interest, apathy is growing due to the lack of short-term positive triggers, such as the possible approval of a physical Bitcoin exchange-traded fund (ETF). The SEC is not expected to make a final decision until January or February 2024.
The USDT premium against the yuan hit a four-month low on the OKX exchange. This premium serves as a gauge of demand among China-based retail cryptocurrency traders and measures the gap between peer-to-peer trading and the US dollar.
Since November 20, USDT has been trading at a discount, suggesting either a significant appetite to liquidate the cryptocurrency or heightened regulatory concerns. In both cases, these are far from positive indicators. Moreover, the last instance of a plus 1% premium occurred 30 days ago, indicating that retail traders are not particularly enthusiastic about the recent rally towards $38,000.
Related: What’s next for Binance’s Changpeng ‘CZ’ Zhao?
By nature, professional traders are unfazed by short-term corrections, regardless of the regulatory environment. Contrary to doomsday predictions, Binance’s status is not affected, and low trading volumes on the unregulated exchange could increase the chances of spot Bitcoin ETF approval.
Differences in time horizons may explain the difference between the optimism of professional traders and individual investors. Additionally, recent regulatory actions may increase institutional investor participation, providing potential upside in the future.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.