Crypto Regulation Is Coming, But Bitcoin Traders Are Still Buying the Dip

Looking at the Bitcoin chart from a weekly or daily perspective presents a bearish outlook and it is clear that the price of Bitcoin has been making lower lows after reaching an all-time high of $69,000.

BTC/USD (FTX) Source: TradingView

Oddly, the Nov. 10 price spike coincided with the U.S. announcement that inflation had hit a 30-year high, but sentiment quickly reversed after fears of a loan default by Chinese property developer Evergrande Group. This appears to have affected the broader market structure.

Traders Still Afraid of Stablecoin Regulation

After this initial corrective phase, regulators and policymakers quickly put relentless pressure on stablecoin issuers. First, on Nov. 12, VanEck’s spot bitcoin ETF was rejected by the U.S. Securities and Exchange Commission (SEC). This veto is directly related to the view that Tether’s stablecoin is insolvent and concerns over bitcoin price manipulation.

On Dec. 14, the U.S. Committee on Banking, Housing and Urban Affairs held a hearing on stablecoins, focusing on consumer protection and its risks. On Dec. 17, the U.S. Financial Stability Oversight Council (FSOC) expressed concerns about the adoption of stablecoins and other digital assets. "The committee recommends that state and federal regulators review existing regulations and tools that can be applied to digital assets," the report said.

The premium on bitcoin futures contracts on the Chicago Mercantile Exchange (CME) reflects deteriorating investor sentiment. This indicator measures the difference between the price of a forward futures contract in the conventional market and the spot price in the current market.

Whenever this metric fades or turns negative, it's a worrisome red flag. This condition is also known as backwardation and indicates the presence of bearish sentiment.

These fixed-month contracts often carry a slight premium, suggesting that sellers are asking for more money to delay settlement. In a healthy market, futures should trade at an annualized premium of 0.5% to 2%, a condition known as contango.

Note how the indicator fell below the "neutral" range after December 9 as Bitcoin fell below $49,000. This suggests that institutional traders are showing a lack of confidence, although this is not yet a bearish structure.

Top traders are increasing their bullish bets

Data provided by the exchanges highlights traders' net long-short positions. By analyzing each client's position on spot, perpetual and futures contracts, we can better understand whether professional traders tend to be bullish or bearish.

There are occasional methodological differences between different exchanges, so observers should monitor changes rather than absolute numbers.

Bitcoin long-short ratio of top traders on exchanges Source: Coinglass.com

Despite Bitcoin’s 19% pullback since Dec. 3, top traders on Binance, Huobi, and OKEx added to their leveraged long positions. More precisely, Binance was the only exchange that faced a small decline in the long-short ratio among top traders. The figure fell from 1.09 to 1.03. However, this effect was offset by OKEx traders increasing their bullish bets (the long-short ratio rose from 1.51 to 2.91) within two weeks.

The lack of a premium on the CME two-month futures contract should not be considered a "red alert" as Bitcoin is currently testing resistance at $46,000, its lowest daily close since Oct. 1. Moreover, top traders on derivatives exchanges increased their long positions despite the price drop.

Regulatory pressure may not ease in the short term, but at the same time, the U.S. government has little recourse to suppress the issuance and trading of stablecoins. These companies can move outside the United States and use dollar-denominated bonds and assets instead of cash to operate. For this reason, there is little panic in the market right now, with data showing that professional traders are buying the dips.

Cointelegraph Chinese is a blockchain news information platform, and the information provided only represents the author's personal opinion, has nothing to do with the position of the Cointelegraph Chinese platform, and does not constitute any investment and financial advice. Readers are requested to establish correct currency concepts and investment concepts, and earnestly raise risk awareness.