Bitcoin rebound falters amid SEC crackdown on exchanges, raising possibility of BTC price capitulation

Bitcoin (BTC) price declined after a failed retest of the $27,400 resistance on June 6, indicating that investors became less confident following recent regulatory actions by the US Securities and Exchange Commission against Binance and Coinbase. Both the exchanges are being sued on a number of counts, including failure to register as licensed brokers and offering unregistered securities.

The SEC Could Have a Tough Case Ahead

According to Kristin Smith, CEO of the Blockchain Association, the SEC is trying to sidestep the formal rulemaking process and deny public engagement. Meanwhile, Insider Intelligence crypto analyst Will Paige said that the SEC intends to control the space through enforcement in the absence of a regulatory framework.

Those criticisms explain why investors are keeping their hopes up ahead of a US Financial Services Committee hearing scheduled for June 13.

The SEC’s potential encroachment has made waves several times, including in the US legislative. For example, Senator Bill Haggerty said the regulatory agency was “weaponizing their role”, and publicly called out SEC Chairman Gary Gensler.

@SECGov Weaponizing its role to kill an industry. It is inexcusable to allow a company to list publicly and then hinder their efforts to register. @Gary GenslerHope to hear from Congress.https://t.co/GdprSW1Yns

— Senator Bill Hagerty (@SenatorHagerty) June 6, 2023

Further supporting the thesis that the cryptocurrency space can function without crypto-banks, as centralized exchanges are commonly known, is the sudden increase in decentralized finance (DeFi) volumes.

Average trading volume across the top three decentralized exchanges jumped 444% between June 5 and June 7. As DEX volumes surged, net outflows on Binance reached $778 million, the difference between the value of assets entering and exiting the exchange.

Bitcoin is trying to claim the $27,000 support, but the upcoming $670M weekly options expiry on June 9th may hit harder than expected.

Bulls caught by surprise by negative news flow

It is worth noting that the actual open interest for the June 9 expiry would be lower as the bulls concentrated their bets above $27,000. These traders became overly bullish after the bitcoin price gained 9% between May 25 and May 29, testing the $28,000 resistance.

The 0.63 put-to-call ratio reflects a mismatch between $410 million in call (buy) open interest and $260 million in put (sell) options. However, if the bitcoin price remains close to $26,500 at 8:00 am UTC on June 9, only $38 million of these call (call) options will be available. This difference occurs because the right to buy bitcoin at $27,000 or $28,000 is void if BTC trades below that level at expiration.

Connected: US District Court issues summons to Binance CEO Changpeng Zhao over SEC action

Bitcoin Bears Target Sub-$26,000 to Extend Payout

Below are the four most likely scenarios based on the current price action. The number of options contracts available on June 9 for Call (bull) and Put (bear) instruments varies depending on the expiration price.

The imbalance in favor of each side constitutes a theoretical advantage:

• Between $25,000 and $26,000: 100 calls vs 5,100 puts. The Bears are in total control, leveraging $125 million.
• Between $26,000 and $27,000: 1,500 calls versus 3,900 puts. The net result is in favor of put (sold) instruments by $65 million.
• Between $27,000 and $28,000: 4,200 calls versus 1,300 puts. The net result is $80 million in favor of the Call (Bull) instruments.
• Between $28,000 and $29,000: 8,700 calls vs 700 puts. The net result is in favor of Call (Bull) instruments of $225 million.

This crude estimate takes into account put options used in bearish bets and call options typically used in neutral-to-bullish trades. This oversimplification disregards more complex investment strategies.

Bulls may need less margin to try to pump BTC price above the $27,000 mark, given that as much as $100 million was liquidated on June 5 using bitcoin futures contracts . As a result, the bears look close to scoring a nice profit on Friday’s options expiration.