On Tuesday, SEC Chair Gary Gensler re-confirmed his plan to crack down on cryptocurrencies, and traders’ regulatory concerns are confirmed by this key Bitcoin futures and options indicator.
After 46 consecutive days of trading above $42,000, Bitcoin (BTC) price started to show weakness on Sept. 21. Over the last three days, the 13% accumulated loss was enough to erase the hard-earned gains added since Aug. 6. Historicals also show that the previous bearish cycle took 79 days to regain the all-important $42,000 level.
Traders' attention turned to the start of the U.S. Federal Reserve's monetary meeting, where the financial authority is expected to indicate whether it will curtail the $120 billion monthly asset repurchase stimulus program. Curiously, as all this takes place, China's equity markets, as measured by the iShares MSCI China ETF ($MCHI), rebounded 1% on Sept. 21.
Is China really the root of the recent correction?
The apparent disconnection between Bitcoin's performance and the global markets' slight recovery caused investors to question whether cryptocurrency regulation is playing a role in the current bearish scenario.
Today U.S. Securities and Commission (SEC) Chair Gary Gensler spoke to the Washington Post, and during the interview, he called stablecoins instruments for use at the "casino gaming tables."
As noted by the attorney Grant Gulovsen, the looming shadow of regulation is expected to have a short-term bearish impact, and investors in any market hate uncertainties regarding what products and services will be allowed.
Notice how the $42,000 level was crucial in determining the end of the mini-bear cycle that was supposedly initiated by Elon Musk's remarks on Bitcoin mining energy use on May 12.
Options markets confirm investors' lack of conviction
To exclude externalities specific to this options instrument, one should also analyze the perpetual futures markets.
Unlike regular monthly contracts, perpetual futures prices are very similar to those at regular spot exchanges. This feature makes retail traders' lives a lot easier because they no longer need to calculate the futures premium or manually roll over positions near expiry.
The funding rate was introduced to balance the exchange's exposure and it is charged from longs (buyers) when they are demanding more leverage. However, when the situation is reversed and shorts (sellers) are over-leveraged, the funding rate goes negative, so they become the ones paying the fee.