Bitcoin ( BTC ) broke below the $40,000 support on April 18. Due to the 15 percent correction over the past two weeks, forecasts now say the price could fall to $30,000.
Meanwhile, regulatory uncertainty still prevails. In particular, the failed European regulatory proposals in connection with identity checks and combating money laundering in "unhosted" wallets should be emphasized. As of last week, exchanges have started to demand additional information about their users, making traders uneasy.
European regulatory proposal causes unrest
The European Parliament's Committee on Economic and Monetary Affairs voted to ban or restrict proof-of-work cryptocurrencies on March 14, but the proposed change was postponed .
Recently, cryptocurrency exchange Bitstamp informed its customers about ongoing policy adjustments on the platform in an email on April 13 . The exchange asked for additional information.
Bitstamp now wants to know from users what their nationality is, where they were born and where their tax domicile is. In addition, the exchange requires documents that prove the origin of the cryptocurrency and the annual income.
On April 14, nonprofit group Coin Center called the Securities and Exchange Commission's March 18 amendments to the definition of "stock exchange" an "unconstitutional hyperbole." If the proposal becomes an SEC rule, it will likely force some decentralized platforms to register as an exchange.
Not all bad news for the sector as more crypto-friendly names are now set to enter the US government.
On April 15, US President Joe Biden announced his intention to nominate law professor Michael Barr as deputy chairman of the Federal Reserve Board.
Barr served on the Ripple Labs Advisory Board from 2015 to 2017 and then served as Assistant Secretary of the Treasury Department for Financial Institutions under former President Barack Obama.
Let's see how the dealers have positioned themselves. To do this, we analyze the indicators for Bitcoin derivatives.
Margin traders increasingly optimistic
With margin trading, investors can borrow cryptocurrencies to leverage their position to increase returns. For example, you can buy cryptocurrencies by borrowing Tether and making larger investments.
On the other hand, Bitcoin borrowers can only short the cryptocurrency as they are betting on the price going down. Unlike futures, the balance between long and short margin positions is not always even.
The chart above shows that traders have been borrowing more USD Tether ( USDT ) lately as the ratio has risen from 13 on March 14th to 17 currently. The higher the indicator is, the more confident professional traders are about the Bitcoin rate.
It must be mentioned that on April 11th a level of 20 was reached. That was the highest level in six months and indicates optimism.
Bitcoin options show fear reigns supreme
However, it became difficult to predict the market's next move as Bitcoin gradually stagnated around $40,000 last week. Still, the 25 percent delta skew is a clear sign when arbitrage exchanges and market makers are over-pricing for upside or downside protection.
The 25 percent delta skew compares equivalent call (buy) and put (sell) options. The indicator turns positive when "fear" prevails because the premium for protective put options is higher than that for call options.
When traders fear a Bitcoin price collapse, the skew indicator rises above 8 percent. If you expect a price increase, the skew indicator falls to -8 percent.
As shown above, on April 8 the indicator was at 8 percent, which means "fear". Before that, it was in the neutral zone for 30 days. As Bitcoin fell below $43,000, the 25 percent delta skew turned bearish.
Despite the negative indicator seen on bitcoin options, the margin trading data suggests these arbitrage venues and market makers are confident that the drop below $40,000 will not last long.
The margin ratio on OKX shows that professional traders have become even more optimistic after a 15 percent BTC price increase in 14 days. That should be some consolation to those currently in the red.
Still, one shouldn't ignore bearish put options that are trading at a premium either. This signals that the probability of a decline is still high. So sometimes it's best to do nothing, sit back and wait for more clarity on price action.
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