Bitcoin derivatives traders are targeting a BTC price of $40K now that Binance has been resolved.

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22 Jan 2024

The recent turmoil in the cryptocurrency market, particularly surrounding Binance’s legal issues and other regulatory challenges, has defied expectations as Bitcoin (BTC) maintained a near $37,000 price on Nov. 22. Despite negative news, BTC futures and options have demonstrated resilience, with traders now eyeing a $40,000 target. This unexpected performance prompts a closer look at Bitcoin derivatives to gauge investor sentiment and risk assessment amid the regulatory landscape.

Binance’s Legal Woes and Market Response:

Binance’s plea deal with the U.S. government on Nov. 21 for money laundering and terror financing violations could have triggered a severe negative impact on Bitcoin’s price. However, the market’s limited reaction suggests potential manipulation to avoid contagion, possibly involving unbacked stablecoins linked to exchanges facing regulatory pressure. The article explores the theory that analyzing Bitcoin derivatives provides a more accurate reflection of investor risk aversion than focusing solely on spot prices.

Regulatory Challenges Beyond Binance:

The U.S. Securities and Exchange Commission’s (SEC) lawsuit against Kraken, alleging fund commingling and failure to register, adds to the regulatory challenges. Additionally, news from the now-defunct Mt. Gox, which lost 850,000 BTC in a 2014 hack, indicates progress in trust asset redemption. Despite these potentially disastrous developments, Bitcoin’s resilience remains a notable market phenomenon.

Contrarian Views and Binance’s Compliance:

Contrary to expectations of a crypto market crash with Binance’s indictment, the platform’s move towards compliance is seen as increasing the likelihood of SEC approval for a Bitcoin spot exchange-traded fund (ETF). This shift weakens the SEC’s main argument of excessive volume market share on unregulated exchanges. While no concrete developments on a spot Bitcoin ETF emerged, amendments to proposals hint at ongoing discussions with the SEC.

Bitcoin Derivatives Resilience:

To validate Bitcoin’s price resilience, the article analyzes BTC futures and options metrics. The 8% premium on Bitcoin monthly futures contracts, lower than mid-November levels, indicates demand for leverage longs. Additionally, the 25% delta skew in Bitcoin options reflects optimism over the past four weeks, with professional traders showing continued interest in hedging strategies despite recent regulatory challenges.
Bitcoin 3-month futures premium. Source: Laevitas
Bitcoin options 25% delta skew. Source: Laevitas

Conclusion and Path to $40,000:

Despite regulatory actions and potential sell pressure from Mt. Gox, the cryptocurrency market remains optimistic, as indicated by derivatives indicators. The liquidation of $70 million leveraged BTC longs has eased pressure from negative price oscillations. With the final round of ETF decisions scheduled for January and February, Bitcoin bears have little incentive to pressure the market, and the path to $40,000 appears more certain.
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Written by Shantanu Gupta

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