Compiler: Zion Editor in charge: karen

Compiler: Zion Editor in charge: karen

After trading above $42,000 for 46 consecutive days, the price of Bitcoin (BTC) started to show weakness on Sept. 21. In the past three days, the cumulative decline of 13% was enough to erase the hard-won gains since August 6. Historical data also shows that the previous bear market cycle lasted 79 days before returning to the important level of $42,000.

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Is China Really the Root of the Recent Pullback?

The apparent disconnect between bitcoin's performance and a slight recovery in global markets has investors questioning whether cryptocurrency regulation has played a role in the current bear market.

In an interview with The Washington Post today, Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), called stablecoins “a tool used at the casino table.”

The crackdown on cryptocurrencies by U.S. regulators over the past six months looks set to get worse with each passing day. Not even sure what effect it will have on the market, but there's certainly nothing to be optimistic about right now.

- Grant Gulovsen,Esq. (@gulovsen) September 19, 2021

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Source: TradingView

Source: TradingView

Note that the $42,000 level is crucial in determining the end of the mini-bear cycle that was said to be triggered by Elon Musk’s May 12 comments regarding the energy use of Bitcoin mining.

To effectively gauge how professional traders are pricing in the risk of a further price crash, investors should monitor the 25% delta skew, which compares similar call (buy) and put (sell) options. It turns positive when a protective put option pays a higher premium than a similarly risky call option.

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Source: Laevitas

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Options Market Confirms Lack of Investor Confidence

In order to rule out external factors specific to this option instrument, the perpetual futures market should also be analyzed.

Unlike ordinary monthly contracts, perpetual futures prices are very similar to those of ordinary spot transactions. This feature makes things easier for retail investors, as they no longer need to calculate contango or rollover positions.

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Source: Bybt

The chart above shows that Bitcoin’s funding rate keeps turning negative, though not sustainable or relevant. For example, a rate of 0.05% charged every 8 hours, equivalent to 1% per week, should not force any derivatives traders to liquidate their positions.

Thus, the options market data confirmed the "fear" indicator from a positive 25% delta skew. Buyers using the derivatives market lack confidence, which may be related to recent negative regulatory concerns. The latest victim of regulatory pressure is the Coinbase exchange, which has decided to drop plans to offer cryptocurrency lending.