Announcements by government agencies making stricter regulations appear for the crypto industry. How derivatives market actions affect the price of bitcoin.
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Crypto In The Crosshairs
On February 9, the bitcoin exchange rate gave up some of its year-to-date gains as headlines of increasing regulatory violations in the crypto industry increasingly hit the newswire. The SEC announced charges against Kraken for selling unregistered securities due to the company’s crypto staking product offering. Additionally, the New York Department of Financial Services announced an investigation into Paxos, the issuer of Pax Dollar and Binance’s BUSD stablecoin.
While the regulator’s concerns aren’t directly related to bitcoin itself, there’s a lot of talk about the new-age Operation Choke Point that’s sweeping the crypto industry. In simple terms, Operation Choke Point is a controversial initiative launched by the federal government that uses the Federal Deposit Insurance Corporation (FDIC) to reduce access to the US banking system for “high-risk”, but (mostly) legal industries. While there is no doubt that there is a lot of fraud and criminal activity going on in various parts of the crypto industry, some worry that the heavy hand of the state could harm honest actors if regulators create heavy barriers that have many restrictions. For example, some people who are still interested in crypto staking can now choose to find offshore and sketchy exchanges to do so, putting assets that are even more risky than before. We have written about some of the problems with yield offers in “Crypto Yields Collapsing Signals ‘Dress Extreme.'”
The link to the tweet is attached.
The link to the tweet is attached.
Bitcoin Market Dynamics
In terms of bitcoin price action, one can assume that the news flow is the cause of the recent local decline, but there are various signs of local exhaustion after the rally exploded in the daily time frame.
The current dynamics in the bitcoin market are as follows:
- The supply of Bitcoin is not as elastic as it has ever been due to the very strong HODLer dynamics.
- The risk-on/risk-off flow dominates, with the strength of the dollar and equity markets determining much of the direction for bitcoin’s price in the short term.
- The extreme lack of order book liquidity for BTC will result in volatile moves in both directions, with liquidity at post-FTX collapse levels despite a recovery from November 2022 lows.
- Bitcoin is still between the $16,000 and $24,000 levels until the market decides otherwise. Expect a pinball match between the bulls and the bears for a while.
The link to the tweet is attached.
From a volume perspective, the market is currently in a useful liquidity gap due to the short remote that causes the price to reach the highest in 2023. Volume support is around the $21,200 level, with more buyers waiting in the barracks between $19,000 and 20,000.
Bitcoin derivatives
Futures and derivatives markets have been quiet since the short-squeeze-fueled rally that led to significant outperformance to start the year. During the rapid price appreciation, notice the call demand as indicated by the negative slope. Long-call and short-put strategies are two ways this dynamic can develop and can be a tailwind for the market until the return is meaningful.
The futures market is no longer signaling that bitcoin is in the midst of contagion, but it’s still a long way from the overheated levels seen during the bull market that helped trigger the impact collapse that overturned the market like a house of cards.
Spot inflows is a must for any useful squeeze position to realize and break bitcoin out of a range of seven months.
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Relevant past articles:
- No Policy Pivot: “More Than More” Rates on the Horizon
- Bitcoin Rips To $21,000, Shorts Removed In Biggest Squeeze Since 2021
- Collapse of Bids Generates Crypto Signals ‘Dress Extreme’
- The Crypto Contagion Intensifies: Who Else Is Swimming in Feathers?
- A Rising Tide Lifts All Boats: Bitcoin, A Live Risk Asset With Increased Global Liquidity
- Bear Market Inflation Spells Trouble For Investors