The price of Bitcoin (BTC) lost momentum after touching the $27,400 resistance again on June 6, indicating that investors are less confident following the recent regulatory actions by the US Securities and Exchange Commission against Binance and Coinbase. Both exchanges have been sued for multiple charges, including failing to register as authorized brokers and offering unregistered securities.
The SEC could have a tough case ahead
For Blockchain Association CEO Kristin Smith, the SEC is trying to circumvent formal rulemaking processes and deny public participation. Meanwhile, Will Paige, a cryptocurrency analyst at Insider Intelligence, said the SEC’s intent is to police the space through scrutiny in the absence of a regulatory framework.
Those criticisms explain why investors may hold on to their hopes at the US Financial Services Committee hearing, scheduled for June 13.
The possible overreach by the SEC has caused a stir on multiple occasions, including on the US legislative side. Senator Bill Hagerty, for example, declared that the regulatory agency is “militarizing its role,” and publicly called it to the attention of 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. @GaryGenslerexpect to hear from Congress.https://t.co/GdprSW1Yns
— Senator Bill Hagerty (@SenatorHagerty) June 6, 2023
The sudden increase in volumes of decentralized finance (DeFi) protocols supports the thesis that the cryptocurrency space can function without crypto banks, as centralized exchanges are commonly known.
Average trading volume across the top three decentralized exchanges shot up 444% between June 5-7. As DEX volumes increased, net withdrawals on Binance reached $778 million, the difference between the value of assets moving in and out of the exchange.
Bitcoin has been trying to regain support at $27,000, but that could be more difficult than expected given the upcoming $670 million worth of weekly options expiration on June 9.
The bullish collective was caught off guard by the flow of negative news
It should be noted that the real open interest for the June 9 expiration will be lower, as the bulls concentrated their bets above USD 27,000. These traders turned overly bullish after Bitcoin price rallied 9% between May 25-29, testing the $28,000 resistance.
The 0.63 ratio between call and put options reflects the imbalance between USD 410 million of open interest in call options and USD 260 million in put options. However, if the Bitcoin price sustains near $26,500 at 8:00 am UTC on June 9, only $38 million of these call options will be available. This difference occurs because the right to buy Bitcoin at $27,000 or $28,000 is worthless if BTC trades below that level at expiration.
Bitcoin bears target prices below $26,000 to increase their gains
Below are the four most likely scenarios based on current price developments. The number of option contracts available on June 9 for buy (bullish) and sell (bearish) instruments varies depending on the expiration price.
The imbalance that favors each side constitutes the theoretical benefit:
- Between $25,000 and $26,000: 100 call options vs. 5,100 put options. The bears are in full control and take $125 million.
- Between $26,000 and $27,000: 1,500 buy options vs. 3,900 put options. The net result favors sales instruments for USD 65 million.
- Between $27,000 and $28,000: 4,200 call options vs. 1,300 put options. The net result favors buy instruments (bullish) by USD 80 million.
- Between $28,000 and $29,000: 8,700 call options vs. 700 put options. The net result favors buy instruments (bullish) by USD 225 million.
This raw estimate considers put options used in bearish bets and call options exclusively in neutral to bullish trades. This oversimplification does not take into account more complex investment strategies.
Since long positions in Bitcoin using futures contracts were liquidated to the value of $100 million on June 5, bulls may have less margin needed to try to push the price of BTC above the $27,000 mark. Consequently, the bears seem closer to taking a decent profit on the options expiration on Friday.
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