All bark and some bite. China’s Bitcoin ban brings traders into play
China bans Bitcoin (BTC) again.
No, we are not going back in time. In 24, the People’s Bank of China (PBoC) announced a series of new measures to encourage cross-departmental coordination to prevent crypto activity. The measures aim to “cut off the payment channels and treat relevant websites and mobile applications in accordance with the law”.
Most investors likely missed the expiration of the $ 3 billion BTC and $ 1.5 billion Ether (ETH) monthly options less than an hour before news of the crypto ban. According to “Molly,” a former Bitcoin magazine contributor, the comments are from China Originally posted on 3.09.China
However, if a company wants to take advantage of negative price movements, it would make more sense to post the news early on Friday at 8 a.m. UTC. For example, a protective call option of $ 42,000 becomes worthless because Deribit’s expiry price is $ 44,873. The holder of this option has the right to sell Bitcoin for $ 42,000, but it’s worth nothing if BTC expires above that level.
For the conspiracy theorists out there, the Chicago Mercantile Exchange (CME) bitcoin futures expiration date is the average price between 2:00 p.m. and 3:00 p.m. UTC. As a result, a potential open interest of $ 340 million was settled near $ 42,150. In the futures market, buyers (buys) and sellers (sales) always match, so it is practically impossible to guess which side has more firepower.
Despite the negative $ 4,000 swing in price, the total liquidation for leveraged long futures contracts is less than $ 120 million. This data will be worrying to the bears as it signals that the bulls are not overconfident and are not using undue leverage.
Professional traders are skeptical but remain neutral
To analyze how bullish or bearish it is for professional traders, one should keep an eye on the futures premium – also known as the “base rate”.
This indicator measures the difference between longer-term futures contracts and the current spot market level. In healthy markets, an annual premium of 5 to 15% is expected, a situation known as contango.
This price gap is due to sellers charging more money to withhold payments longer, and a red alert appears when the indicator fades or turns negative, known as a “step back”.
Note that the sharp decline caused by the negative 9% move on September 24th drove the annual futures premium to a two-month low. The 6% indicator is currently at the lower end of the “neutral” range and is ending a moderate bullish phase that lasted until September 19.
To confirm whether this move is specific to this instrument, one should also analyze the options markets.
Options market confirms traders are entering the “fear” zone
The 25% delta deviation compares call (buy) and put (sell) options similarly. The index becomes positive when “fear” prevails because the put premium is higher than with similar risky call options.
The opposite happens when market makers are bullish, which causes the 25% delta deviation indicator to move into negative territory. Measured values between minus 8% and plus 8% are generally considered to be neutral.
The 25% delta deviation has been floating in the neutral zone since July 24th, but rose to 10% on September 22nd, suggesting “fear” from options traders. After a brief retest of the neutral level of 8%, today’s Bitcoin price action has caused the indicator to rise above 11%. Again, the level was last seen two months ago and is very similar to the BTC futures market.
While there is no sign of bear market in the Bitcoin derivatives market, today’s drop below $ 41,000 has led professional traders to switch to “fear” mode. As a result, futures traders are reluctant to take leveraged long positions while the options market has a premium for protective put options.
Unless Bitcoin shows strength over the weekend, the bears can benefit from the current panic among investors.
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.