The price of Bitcoin has prompted concerns about investor sentiment, especially as the outlook for the immediate launch of a Bitcoin ETF becomes more uncertain despite positive legal developments. The price chart of Bitcoin has cast doubts on investor psychology, becoming increasingly negative since Grayscale’s legal victory in front of the U.S. Securities and Exchange Commission (SEC) on August 29th and subsequent delays in Bitcoin spot ETF applications.
The hype around Bitcoin ETFs is gradually fading away. By August 18th, the entire 19% price surge that followed BlackRock’s initial ETF filing had completely reversed as Bitcoin fell back to $26,000. There was then a failed attempt to reclaim the $28,000 support level as investors increased the odds of approving the ETF following positive news about Grayscale’s Bitcoin trust custody requirements.
Other indicators like the S&P 500 and gold price volatility have also contributed to a generally negative investor sentiment. Some analysts attribute Bitcoin’s lackluster performance to ongoing legal actions against two major exchanges, Binance and Coinbase. Furthermore, sources suggest that the U.S. Department of Justice (DOJ) might prosecute Binance as part of a criminal investigation, focusing on money laundering and potential violations of penalties related to Russian entities.
Pentoshi, the Chief Investment Officer of North Node Capital and a Bitcoin advocate, expressed the current conditions in a post on X:
According to Pentoshi, the potential profits from approving a Bitcoin ETF are greater than the price impact of legal actions against exchanges. However, this assumption doesn’t account for the U.S. inflation rate, measured by the Consumer Price Index, which dropped to 3.2% in July 2023 from 9.1% in June 2022.
Moreover, the total assets of the U.S. Federal Reserve have decreased to $8.12 trillion, down from the recent peak of $8.73 trillion in March 2023. This suggests that the central bank is draining liquidity from the market, which is unfavorable for Bitcoin’s inflation-hedge narrative.
Looking at a longer time frame, Bitcoin has held the $25,000 level since mid-March, but a closer examination of derivative data indicates that the bulls’ confidence is being challenged. Bitcoin futures contracts typically trade slightly higher than the spot market, indicating that sellers are demanding more money for deferred settlement. Therefore, healthy Bitcoin futures markets will trade with annual insurance fees of 5% to 10% – a situation known as contango, not exclusive to the cryptocurrency market.
The current 3.5% futures insurance fee for Bitcoin (basic rate) is at its lowest since mid-June, before BlackRock’s spot ETF filing. This index reflects diminishing demand for leveraged buyers using derivatives.
Traders should also analyze the options market to gauge whether the recent correction has made investors more pessimistic. A 25% delta skew is a notable indicator when trading price spreads and market makers charging excessively high fees to protect prices up or down.
In summary, if traders anticipate a Bitcoin price drop, the delta skew will increase above 7%, and periods of excitement tend to have a skew below 7%. Recently, the 25% delta skew for options entered the bearish territory, with protective put options traded at a 9% insurance fee on September 4th compared to similar call options.
A suggested future Bitcoin price of $22,000
Bitcoin derivative data indicates a strong downward trend, particularly as the approval of the spot ETF might be delayed until 2024 due to the SEC’s concerns about the lack of controls on offshore exchanges relying on stablecoins.
Meanwhile, legal uncertainties favor the bears, as the fear, uncertainty, and doubt surrounding potential DOJ actions or ongoing lawsuits against exchanges by the SEC cannot be eliminated. Ultimately, a pullback to $22,000 – last seen when Bitcoin futures had a 3.5% insurance fee – is the most likely scenario, considering the recent inability to sustain positive price momentum despite the high chance of a Bitcoin spot ETF approval.