Some bite and some bark. China’s Bitcoin ban places traders in the “fear” zone

After China’s announcement of a ‘crypto ban’, Bitcoin derivatives markets went neutral to bearish. This triggered a drop in the BTC price to $40,000. China bans Bitcoin (BTC) again. The People’s Bank of China (PBoC), published a new set of steps to encourage inter-departmental coordination in cracking down on cryptocurrency activity on Sept. 24. These measures were intended to “cut off payment channel, dispose of relevant websites or mobile applications in compliance with the law.” Many investors may not have noticed the expiry of the monthly options for $3 billion BTC (and $1.5 billion Ether) that occurred less than an hour before the crypto ban news was published. “Molly,” a former contributor to Bitcoin Magazine, claims that the comments from China were first posted on Sept. 3. However, if an entity was looking to profit from the negative price swings, it would have made more sense to release the news before Friday’s expiry at 8:08 AM UTC. The $42,000 protective put option was rendered worthless by the Deribit expiry cost of $44,873. The $42,000 protective put option was rendered worthless because the Deribit expiry price was $44,873. The potential $340 million open interest settled at $42,150. The futures markets are a matchless market where buyers (longs and sellers) are always matched. This makes it nearly impossible to predict which side has more firepower. Source: TradingView Despite the $4,000 price swing, aggregate liquidations of leveraged long futures contracts totaled less than $120million. This data should alarm bears as it indicates that bulls aren’t overconfident or using extreme leverage. However, aggregate liquidations on leveraged long futures contracts were less than $120 million. In healthy markets, a 5% to 15% annualized premium can be expected. This is known as contango. This price gap is caused by sellers demanding more money to withhold settlement longer, and a red alert emerges whenever this indicator fades or turns negative, known as “backwardation.”Bitcoin 3-month future contracts basis rate. Source: Laevitas.chNotice the sharp decline in annualized futures premium due to the negative 9% movement on Sept. 24, which caused it to fall to its lowest level in two years. The current 6% indicator is at the bottom end of the “neutral” range, ending a moderate bullish phase that lasted up to Sept. 19. The metric will turn negative when market makers are bearish, so the 25% delta skew indicator will shift to the negative zone. Negative 8% to positive 8% readings are generally considered neutral. Debit Bitcoin options 25% delta-skew. Source: laevitas.chThe 25% Delta skew had been in the neutral zone since July 24, but it spiked up to 10% on September 22, signaling “fear” by options traders. Today’s Bitcoin price action caused the indicator to rise above 11 percent after a brief retest at the neutral 8% level. The indicator has risen above 11% once again, a level that was last seen two months ago. Professional traders flipped to “fear” mode today after the price fell below $41,000. This means that futures contract traders are reluctant to open long positions with leverage, while option markets offer a premium for protective puts options. Bears could profit from investors’ panic. Risk is inherent in every investment and trade. Before making a decision, you should do your own research.

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