Bitcoin rebound falters amid SEC crackdown on exchanges, raising chance of a BTC price capitulation

June 8, 2023 Coin Telegraph

Regulatory concerns continue to impact the entire crypto market and this week’s BTC options expiry could play a decisive role in pushing Bitcoin price under $26,000.

Bitcoin (BTC) price lost steam after a failed retest of the $27,400 resistance on June 6, signaling that investors became less confident after the recent regulatory actions by the U.S Securities and Exchange Commission against Binance and Coinbase. Both exchanges are being sued on multiple counts, including failure to register as licensed brokers and offering unregistered securities.

The SEC might have a difficult case ahead

According to Blockchain Association CEO Kristin Smith, the SEC is trying to circumvent formal rulemaking processes and deny public engagement. Meanwhile, Insider Intelligence crypto analyst Will Paige said the SEC’s intent is to police the space through enforcement in the absence of a regulatory framework.

Those criticisms explain why investors may be clinging to their hopes in the U.S. Financial Services Committee hearing, scheduled for June 13.

The potential overreach of the SEC has caused ripples multiple times,including the U.S. legislative. Senator Bill Hagerty, for instance, stated that the regulating agency is "weaponizing their role", and publicly called out the SEC chairman Gary Gensler.

The @SECGov is weaponizing their role to kill an industry. Allowing a company to list publicly and then stonewalling their attempts to register is indefensible. @GaryGensler, expect to hear from Congress.https://t.co/GdprSW1Yns
— Senator Bill Hagerty (@SenatorHagerty) June 6, 2023

Further supporting the thesis that the cryptocurrency space can function without crypto-banks, as the centralized exchanges are commonly known, is the sudden increase in decentralized finance (DeFi) volumes.

The median trading volume across the top three decentralized exchanges jumped 444% between June 5 and June 7. As DEX volumes surged, net outflows on Binance reached $778 million, the difference between the value of assets entering and exiting the exchange.

Bitcoin has been trying to claim back the $27,000 support, but that might be harder than expected given the upcoming $670 million weekly option expiry on June 9.

Bulls have been caught by surprise with the negative newsflow

It is worth noting that the actual open interest for the June 9 expiry will be lower since bulls concentrated their wagers above $27,000. These traders got excessively optimistic after Bitcoin’s price gained 9% between May 25 and May 29, testing the $28,000 resistance.

*Bitcoin options aggregate open interest for June 9. Source: CoinGlass*

The 0.63 put-to-call ratio reflects the imbalance between the $410 million in call (buy) open interest and the $260 million in put (sell) options. However, if Bitcoin’s price remains near $26,500 at 8:00 am UTC on June 9, only $38 million worth of these call (buy) options will be available. This difference happens because the right to buy Bitcoin at $27,000 or $28,000 is useless if BTC trades below that level on expiry.

Bitcoin bears aim for sub-$26,000 to increase their payout

Below are the four most likely scenarios based on the current price action. The number of options contracts available on June 9 for call (bull) and put (bear) instruments varies depending on the expiry price.

The imbalance favoring each side constitutes the theoretical profit:

Between $25,000 and $26,000: 100 calls vs. 5,100 puts. Bears in total control, profiting $125 million.
Between $26,000 and $27,000: 1,500 calls vs. 3,900 puts. The net result favors the put (sell) instruments by $65 million.
Between $27,000 and $28,000: 4,200 calls vs. 1,300 puts. The net result favors the call (bull) instruments by $80 million.
Between $28,000 and $29,000: 8,700 calls vs. 700 puts. The net result favors call (bull) instruments by $225 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. This oversimplification disregards more complex investment strategies.

Given that Bitcoin longs using futures contracts were liquidated to the tune of $100 million on June 5, bulls might have less margin required to try pumping the BTC price above the $27,000 mark. Consequently, bears seem closer to scoring a decent profit on Friday's options expiry.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Security or not, Ethereum price looks poised to hold the $1.8K level based on 3 key metrics

June 7, 2023 Coin Telegraph

Security or not, Ethereum price looks poised to hold the .8K level based on 3 key metrics

basis

Ethereum could eventually fall afoul of the SEC, but at the moment, key data points suggest ETH is poised to hold the $1,800 level.

Ether’s (ETH) price retested $1,780 after the news of the U.S. Securities and Exchange Commission suing cryptocurrency exchanges Binance and Coinbase but it’s not preposterous to suggest that Ether bulls should be more than happy that its price did not break below the 67-day support.

The SEC actions are actually a double-edged sword for Ethereum and on crypto Twitter, some analysts attributed the bounce in Ether as a result of it not being listed as a security in either of the cases brought against Binance and Coinbase. For instance, the SEC explicitly mentioned BNB, Solana (SOL) and Cardano (ADA), which are direct competitors to Ethereum’s smart contract processing capabilities.

However, as noted by analyst Jevgenijs Kazanins, Ether’s omission does not mean that it has the green light from the SEC.

SEC did not mention #ETH in the list of tokens that it considers to be securities when suing Coinbase and Binance. Could it be that the SEC is working on a separate lawsuit targeting Ethereum Foundation?
— Jevgenijs Kazanins (@jevgenijs) June 6, 2023

Kazanins raises the question of whether the SEC could be targeting the Ethereum Foundation in a separate lawsuit. For now, the idea is a mere unfounded speculation, but it certainly has merit given that SEC chairman Gary Gensler refused to answer questions about Ethereum’s status before the U.S. House Financial Services Committee in April 2023.

In the meantime, what we can focus on is Ether’s price action, network data and other data which impacts investor sentiment and price in the short-term.

Ethereum Dapps get a slight boost

TVL measures the deposits locked in Ethereum's decentralized applications, which have been in a downtrend since mid-March. The indicator reached a 14.35 million ETH bottom on June 3, but bounced back to 14.6 million ETH by June 6, according to DefiLlama.

The number of active addresses interacting with decentralized applications (DApps) is also in a slump. Over the last 30 days, the top 12 DApps running on the Ethereum network saw a 4% increase in active addresses, even though the average transaction gas fee remained above $6.5.

*30-day Ethereum DApp activity. Source: DappRadar*

If investors fear that Ether has higher odds of breaking below the $1,800 support, it should be reflected in the ETH futures contract premium and increased costs for protective put options.

Ether derivatives metrics even as regulations ramped up

Ether quarterly futures are popular among whales and arbitrage desks. However, these fixed-month contracts typically trade at a slight premium to spot markets, indicating that sellers are asking for more money to delay settlement.

As a result, ETH futures contracts in healthy markets should trade at a 4 to 8% annualized premium — a situation known as contango, which is not unique to crypto markets.

*Ether 2-month futures annualized premium. Source: Laevitas*

According to the futures premium, known as the basis indicator, professional traders have been avoiding leveraged longs (bullish bets). Still, not even the retest of the $1,780 level on June 6 was enough to flip those whales and market makers into bearish sentiment.

To exclude externalities that might have solely impacted the Ether futures, one should analyze the ETH options markets. The 25% delta skew indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put option premium is higher than the call options.

*Ether 30-day 25% skew. Source: Laevitas*

The skew indicator will move above 8% if traders fear an Ether price crash. On the other hand, generalized excitement reflects a negative 8% skew. As displayed above, the 25% delta skew moved above the positive 8% threshold on June 5, indicating bearishness. However, the subsequent bounce to $1,880 on June 6 has moved the metric back to a neutral state.

Ether’s price looks poised to hold above $1,800

In short, these three indicators signal resilience — namely, the TVL bounce to 14.6 million ETH, the 4% increase in Dapps active addresses, and a meager impact on Ether derivatives markets despite the retest of the $1,800 level.

Ethereum network usage data remains healthy and the recent retest of the 67-day support was not enough to scare professional traders, according to derivatives metrics.

Consequently, bulls seem to have dodged a bullet, greatly reducing the risk of an imminent price crash.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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CFTC declares Ether as a commodity again in court filing

December 14, 2022 Coin Telegraph

Alameda

The community is hopeful that the assertion by the CFTC will put to bed claims that staked coins are securities according to the Howey Test.

The Commodity Futures Trading Commission (CFTC) has again labeled Ether (ETH) as a commodity in a Dec. 13 court filing — in contrast to statements from chief Rostin Behnam on Nov. 30 suggesting that Bitcoin was the sole cryptocurrency that should be viewed as a commodity.

According to the CFTC, as per their filing today, ETH is a commodity. This really should put any security designation to rest. pic.twitter.com/PkHWredNK4
— Hal Press (@NorthRockLP) December 13, 2022

In its lawsuit against Sam Bankman-Fried, FTX, and sister company Alameda Research, the regulator on multiple occasions referred to Ether, Bitcoin (BTC) and Tether (USDT) "among others" as "commodities" under United States law.

“Certain digital assets are “commodities,” including bitcoin (BTC), ether (ETH), tether (USDT) and others, as defined under Section 1a(9) of the Act, 7 U.S.C. § 1a(9).”

However, there appears to be some disagreement within the CFTC itself regarding whether Ether should be viewed as a commodity or not, at least in recent weeks.

During a crypto event at Princeton University on Nov. 30, CFTC chief Rostin Benham reportedly suggested that Bitcoin is the only crypto asset that should be viewed as a commodity — walking back previous comments which asserted that Ether may also be a commodity.

The chairman of the Securities and Exchange Commission, Gary Gensler has also had an undetermined stance on Ether in recent months.

In an interview with Jim Cramer during the hosts' Mad Money show on Jun. 27, Gensler confirmed that Bitcoin was a commodity adding: “That's the only one I'm going to say.”

Gensler has previously suggested Ether was a security after its initial coin offering but had become more decentralized and turned into a commodity since then.

In September, his stance appeared to have shifted again after Ether’s transition to proof-of-stake (PoS), when he argued that staked tokens may constitute securities under the Howey test.

The designation of crypto assets in the U.S. is particularly important, as the CFTC regulates commodities futures while securities like bonds and stocks are regulated by the Securities and Exchange Commission (SEC).

Crypto skeptic Senator Elizabeth Warren is reportedly working on a bill that would give the SEC most of the regulatory authority over the crypto industry, and Intercontinental Exchange Inc CEO Jeffrey Sprecher is also confident that crypto assets will be handled like securities — suggesting at a financial services conference on Dec. 6 that this would result in greater consumer protections.

Belgium has taken a different stance on the designation however, with its Financial Services and Markets Authority asserting in a Nov. 22 report that Bitcoin, Ether and other crypto assets issued solely by computer code do not constitute securities.

Ether staking could trigger securities laws — Gensler

September 16, 2022 Coin Telegraph

Blockfi

Though he did not specify any particular crypto, SEC chair Gary Gensler said proof-of-stake cryptocurrencies could be subject to securities laws.

Ethereum’s upgrade to proof-of-stake may have placed the cryptocurrency back in the crosshairs of the Securities and Exchange Commission (SEC).

Speaking to reporters after the Senate Banking Committee on Sept. 15, SEC chairman Gary Gensler reportedly said that cryptocurrencies and intermediaries that allow holders to “stake” their crypto may define it as a security under the Howey test, according to The Wall Street Journal.

“From the coin’s perspective […] that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others,” WSJ reported Gensler as saying.

The comments came on the same day as Ethereum's (ETH) transition to proof-of-stake (PoS), meaning the network will no longer rely on energy-intensive “proof-of-work” mining and instead, allows validators to verify transactions and create new blocks in a process that involves “staking."

Gensler said that allowing holders to stake coins results in “the investing public anticipating profits based on the efforts of others.”

Gensler went on to say that intermediaries offering staking services to its customers “looks very similar — with some changes of labeling — to lending.”

The SEC has previously said they didn’t see ETH as a security, with both the Commodity Futures Trading Commission (CFTC) and the SEC agreeing that it acted more like a commodity.

The SEC has been keeping a close watch on the crypto space, particularly those that it alleges are securities. The regulator has been embroiled in a case against Ripple Labs concerning the launch of the XRP token.

The SEC has also pushed firms offering crypto lending products to register with them, including a $100 million penalty directed at BlockFi in February for its failure to register high-yield interest accounts that the SEC considers securities.

Gabor Gurbacs, director of digital assets strategy at American investment firm VanEck, tweeted to his 49,300 followers that he had been saying for over six years "that POW to POS transitions can draw regulatory attention."

To be clear, I am not saying that ETH is necessarily a security because of its proof model, but regulators do talk about staking in the context of dividends which if one feature of what securities laws call a "common enterprise". There are other factors in the Howey test too.
— Gabor Gurbacs (@gaborgurbacs) September 15, 2022

Gurbacs went on to clarify that regulators refer to rewards from staking as dividends, which is a feature of the Howey test.

The Howey Test refers to a Supreme Court case in 1946 where the court established whether a transaction qualifies as an investment contract. If it does, then it would be considered a security and is covered by the Securities Act of 1933.

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Is excessive bullish optimism behind Bitcoin’s drop below $60K?

October 24, 2021 Coin Telegraph

Is excessive bullish optimism behind Bitcoin’s drop below K?

basis

Bitcoin’s futures premium hit its highest level in 5 months, but was this the primary reason for BTC’s fall below $60,000?

Bitcoin (BTC) has a long history of forming local tops when events that are anticipated by the market occur. The recent Bitcoin exchange-traded fund (ETF) launch on Oct. 19 was no different and led to a 53% monthly rally to an all-time high at $67,000.

Now that the price has briefly fallen below $60,000, investors are attempting to understand if the 10% correction was a healthy short-term profit taking or the end of the bull run. To determine this, traders need to analyze BTC's previous price activity to evaluate the possible similarities.

*Bitcoin price in USD. Source: TradingView*

The chart above depicts the day of a New York Times headline announcing that "Bitcoin gets cautious nod from China's central bank" in November 2013. At the time, Yi Gang, the deputy governor of the People's Bank of China (POBC), said that people could freely participate in Bitcoin's market. He even mentioned a personal view that suggested a constructive long-term perspective on digital currency.

It's also worth mentioning that this favorable media coverage on Chinese state-run television aired on Oct. 28, and it showed the world's first Bitcoin ATM in Vancouver.

Bearish events can also be anticipated

Bearish examples can also be found throughout Bitcoin's 12-year price action. For example, the April 2014 Chinese ban marked a 5-month price bottom.

On April 10, 2014, Huobi and BTC Trade, the two of China's largest exchanges, said their trading accounts at certain domestic banks would be closed within one week. Once again, rumors had been circulating since March 2014, and this was fueled by a note on the Chinese news outlet Caixin.

More recent events included the CBOE Bitcoin futures launch on Dec. 19, 2017, which preceded the infamous $20,000 all-time high by one day. Another event that marked a local top was the Coinbase IPO on Nasdaq when Bitcoin price reached $64,900. Both events are signaled on the following chart:

*Bitcoin price at Coinbase in USD. Source: TradingView*

Notice how all of the above events were largely anticipated, even though some did not have a precise announcement date. For example, Bitcoin's futures-based ETF's Oct. 19 initial trading session was preceded by SEC's Chair Gary Gensler's statement on Aug. 3 that the regulator would be open to accepting a BTC ETF application using CME derivatives instruments.

It's possible that investors had previously positioned themselves ahead of the ProShares Bitcoin Strategy ETF launch and a look at BTC's derivatives markets could possibly provide more insight into this.

The futures premium was not "exaggerated"

The futures premium, also known as the basis rate, measures the price gap between futures contract prices and the regular spot market. Quarterly futures are the preferred instruments of whales and arbitrage desks. Although it might seem complicated for retail traders due to their settlement date and price difference from spot markets, their most significant advantage is the lack of a fluctuating funding rate.

Some analysts have pointed to the "return of the contango" after the bais rate reached 17%,which was the highest level in 5 months.

pic.twitter.com/M7FNpnSRBV
— Dylan LeClair (@DylanLeClair_) October 20, 2021

In a normal situation, futures markets of any kind (soy, S&P 500, WTIl) will trade at a slightly higher price versus the regular spot market. That happens mainly because the investor needs to wait until the contract expires to collect his payout, so there's an opportunity cost embedded, and this causes the premium.

*Bitcoin 3-month futures annualized premium. Source: laevitas.ch*

Let's assume one does arbitrage trades, aiming to maximize the funds held in USD. This trader could buy a stablecoin and get a 12% annualized yield using decentralized finance (DeFi) or centralized crypto lending services. A 12% premium on the Bitcoin futures market should be deemed a 'neutral' rate for a market maker.

Excluding the short-lived 20% peak on Oct. 21, the basis rate remained below 17% after a 50% rally month-to-date. As a comparison, on the eve of Coinbase's stock launch, the futures premium skyrocketed to 49%. Therefore, those naming the current scenario as somehow excessively optimistic are just wrong.

Liquidation risks were also not "imminent"

Whenever buyers are overconfident and accept a steep premium for leverage using futures contracts, a 10% to 15% price drop could trigger cascading liquidations. However, the mere presence of a 40% or higher annualized premium does not necessarily translate to an imminent crash risk because buyers can add margin to keep their positions open.

As the main derivatives metric shows, a 10% drop from the $67,000 all-time high on Oct. 20 was not enough to cause any sign of worry from professional traders as the basis rate stood at a healthy 12% level.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

Derivatives data favors Ethereum bulls even with this week’s crash below $3K

September 24, 2021 Coin Telegraph

<div>Derivatives data favors Ethereum bulls even with this week's crash below K</div>

Coin Telegraph

Losing the $3,000 mark just days before Friday's $1.55 billion ETH options expiry nearly doomed Ether longs, but derivatives data shows bulls are still in favor.

Ether (ETH) has been in a bearish trend since early September, and this week's Evergrande-led market crash drove the price below $2,700 on Sept.20, its lowest level in 47 days. Curiously, just three weeks ago, Ether was testing the $4,000 psychological barrier, but this changed after mounting crypto regulatory concerns and the fear of China's debt markets triggering a global sell-off intensified.

This week U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler spoke to the Washington Post about renewed plans to regulate the crypto sector and the growing stablecoin market.

Ether's negative price trend reversed on Sept. 22 after U.S. Federal Reserve Chairman Jerome Powell confirmed the continuation of the central bank's monthly bond purchasing program. Powell also made clear that no interest rate hike should be expected in 2021.

*Ether price at Bitstamp in USD. Source: TradingView*

Even though the current $3,000 level represents a 25% retraction from the recent $4,000 peak, Ether price still reflects a 215% gain in 2021 and the network's adjusted total value locked (TVL) jumped from $13 billion in 2020 to $60 billion, signaling strong adoption despite surging gas fees.

*Bitcoin options aggregate open interest for Sept. 24. Source: Bybt.com*

As shown above, bulls got caught by surprise because 72% of call (buy) instruments were placed at $3,200 or higher. Consequently, if Ether remains below that price on Friday, only $260 million worth of neutral-to-bullish call options will be activated on the expiry.

A call option is a right to sell Bitcoin at a predetermined price on the set expiry date. Thus, a $3,200 cut option becomes worthless if Ether remains below that price at 8:00 am UTC on Sept. 24.

Bulls still have an advantage in Friday's $1.55 billion expiry

The 1.48 call-to-put ratio represents the difference between the $920 million worth of call (buy) options versus the $620 million put (sell) options. This bird's eye view begs a more detailed analysis because some bets are far-fetched considering the current $3,000 level.

Below are the four most likely scenarios considering the current Ether price. The imbalance favoring either side represents the theoretical profit from the expiry. The data below shows how many contracts will be activated on Friday, depending on the ETH price:

Between $2,700 and $2,900: 61,900 calls vs. 72,000 puts. The net result is $27 million favoring the protective put (bear) instruments.
Between $2,900 and $3,000: 79,900 calls vs. 52,200 puts. The net result is $80 million favoring the call (bull) options.
Between $3,000 and $3,200: 82,500 calls vs. 37,300 puts. The net result is $136 million favoring the call (bull) options.
Above $3,200: 99,600 calls vs. 20,200 puts. The net result favors the call options by $255 million.

This raw estimate considers call options being exclusively used in bullish strategies and put options in neutral-to-bearish trades. However, investors typically use more complex strategies that involve different expiry dates. Moreover, there is no way to know if the arbitrage desks are fully hedged.

To win, bears need to keep Ether below $2,900

These two competing forces will show their strength, and the bears will try to minimize the damage. On the other hand, the bulls have decent control over the situation if the Ether price remains above $3,000.

The most important test will be the $2,900 level because bears have significant incentives to suppress the price at this level, even if momentarily. Although there's still room for additional volatility ahead of the expiry, the bulls seem to be better positioned.

gensler