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

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

The SEC might have a difficult case ahead

According to Blockchain Association CEO Kristin Smith, the SEC is trying to circumvent formal rulemaking processes and deny public engagement. Meanwhile, Insider Intelligence crypto analyst Will Paige said the SEC’s intent is to police the space through enforcement in the absence of a regulatory framework.

Those criticisms explain why investors may be clinging to their hopes in the U.S. Financial Services Committee hearing, scheduled for June 13.

The potential overreach of the SEC has caused ripples multiple times,including the U.S. legislative. Senator Bill Hagerty, for instance, stated that the regulating agency is “weaponizing their role”, and publicly called out the SEC chairman Gary Gensler.

The @SECGov is weaponizing their role to kill an industry. Allowing a company to list publicly and then stonewalling their attempts to register is indefensible. @GaryGensler, expect 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 the centralized exchanges are commonly known, is the sudden increase in decentralized finance (DeFi) volumes.

The median 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 has been trying to claim back the $27,000 support, but that might be harder than expected given the upcoming $670 million weekly option expiry on June 9.

Bulls have been caught by surprise with the negative newsflow

It is worth noting that the actual open interest for the June 9 expiry will be lower since bulls concentrated their wagers above $27,000. These traders got excessively optimistic after Bitcoin’s price gained 9% between May 25 and May 29, testing the $28,000 resistance.

The 0.63 put-to-call ratio reflects the imbalance between the $410 million in call (buy) open interest and the $260 million in put (sell) options. However, if Bitcoin’s price remains near $26,500 at 8:00 am UTC on June 9, only $38 million worth of these call (buy) options will be available. This difference happens because the right to buy Bitcoin at $27,000 or $28,000 is useless if BTC trades below that level on expiry.

Related: US District Court issues summons for Binance CEO Changpeng Zhao over SEC action

Bitcoin bears aim for sub-$26,000 to increase their 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 expiry price.

The imbalance favoring each side constitutes the theoretical profit:

• Between $25,000 and $26,000: 100 calls vs. 5,100 puts. Bears in total control, profiting $125 million.
• Between $26,000 and $27,000: 1,500 calls vs. 3,900 puts. The net result favors the put (sell) instruments by $65 million.
• Between $27,000 and $28,000: 4,200 calls vs. 1,300 puts. The net result favors the call (bull) instruments by $80 million.
• Between $28,000 and $29,000: 8,700 calls vs. 700 puts. The net result favors call (bull) instruments by $225 million.

This crude estimate considers the put options used in bearish bets and the call options exclusively in neutral-to-bullish trades. This oversimplification disregards more complex investment strategies.

Given that Bitcoin longs using futures contracts were liquidated to the tune of $100 million on June 5, bulls might have less margin required to try pumping the BTC price above the $27,000 mark. Consequently, bears seem closer to scoring a decent profit on Friday’s options expiry.