Despite recent events that would typically be expected to have a severe negative impact on the cryptocurrency market, Bitcoin (BTC) has managed to maintain its price stability, trading near $37,000 on November 22, which is essentially unchanged from three days earlier.
This surprising performance comes in the wake of Binance’s plea deal with the U.S. government on November 21 for violating money laundering and terror financing laws.
Some speculate that entities may be manipulating Bitcoin’s price to avoid contagion, potentially through the issuance of unbacked stablecoins, especially those connected to exchanges facing regulatory scrutiny.
To gauge investor risk aversion, it’s essential to examine Bitcoin derivatives rather than focusing solely on its current price.
The U.S. government had filed indictments against Binance and its co-founder, Changpeng “CZ” Zhao, on November 14, but these documents were unsealed a week later.
CZ admitted to the offenses and stepped away from Binance management as part of the deal. The penalties, including fines imposed on CZ personally, totaled over $4 billion.
Surprisingly, this news only led to a modest $50 million decline in BTC leveraged long futures contracts, with Bitcoin briefly trading down to $35,600.
On November 20, the United States Securities and Exchange Commission (SEC) sued crypto exchange Kraken, alleging the commingling of customer funds and failure to register as a securities broker, dealer, and clearing agency.
Kraken defended itself, claiming that the SEC’s commingling accusations pertained to previously earned fees, not customer assets.
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Another potentially impactful development was the announcement by the Mt. Gox trustee, Nobuaki Kobayashi, on November 21 regarding the redemption of $47 million in trust assets and plans to initiate cash repayments to creditors in 2023.
Although no information about the sale of Bitcoin assets was provided, investors speculated that this milestone was drawing closer.
Many experienced traders and analysts had predicted a crypto market crash if Binance were indicted by the Department of Justice (DOJ).
However, the opposite seemed to be happening. Binance’s move towards compliance could increase the chances of a spot ETF approval, as it weakens the SEC’s argument about excessive market share on unregulated exchanges.
Bitcoin’s resilience in the face of these regulatory actions is reflected in Bitcoin derivatives markets.
Monthly futures contracts for Bitcoin are currently holding an 8% premium, indicating demand for leverage long positions, though it’s lower than the 11.5% seen in mid-November.
The options 25% delta skew, which measures arbitrage and market makers’ pricing for upside or downside protection, has remained optimistic.
In summary, despite regulatory actions and potential sell pressure from Mt. Gox, the cryptocurrency market has remained buoyant, as evidenced by derivative indicators.
The liquidation of $70 million leveraged BTC longs has further reduced the pressure from negative price fluctuations, suggesting that the path to $40,000 for Bitcoin is becoming more certain, especially with upcoming ETF decisions in January and February.
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