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Bitcoin continues to show remarkable resilience in the face of back-to-back adverse developments in the crypto sphere. However, the proverbial storm clouds continue to gather, which suggests that Bitcoin's current rally might well be short-lived.
First, Genesis rocked the crypto sphere earlier this week when it formally entered chapter 11 bankruptcy in the US. As part of its bankruptcy filings, Genesis revealed 100,000 creditors and aggregate liabilities ranging between $1.2 billion and $11 billion, including a $769.5 million loan from Gemini.
Of course, the lending arm of Genesis, formally known as Genesis Global Capital, had revealed back in November 2022 that around $175 million of its funds remained trapped within the now-bankrupt FTX exchange. Concurrent with this disclosure, Genesis Global Capital halted all loan creations and redemptions, trapping the funds of 340,000 Gemini Earn users. As a refresher, under Gemini's Earn program, users could lend their crypto holdings to Genesis in order to earn interest. Of course, the SEC recently took a dim view of this program, accusing Genesis and Gemini of essentially offering "unregistered securities." Despite additional contagion vectors emanating from Genesis' bankruptcy, Bitcoin remained largely unfazed.
CONFIRMATION THAT BINANCE HAS BEEN CUT OFF FROM SWIFT FOR USD TRANSFERS IN MULTIPLE COUNTRIES: https://t.co/PdUrq5Cghf pic.twitter.com/O6Yum7749g
— DIRTY BUBBLE MEDIA: THE WALLED GARDEN (@MikeBurgersburg) January 21, 2023
Then, yesterday, rumors that Binance had been cut off from the global banking messaging service, SWIFT, spread like wildfire.
Binance said Signature Bank will only handle user transactions of more than $100,000 as the bank decreases its exposure to digital-asset markets. Some individual users may not be able to use SWIFT bank transfers to buy or sell crypto with/for USD for amounts less than 100,000USD.
— Wu Blockchain (@WuBlockchain) January 22, 2023
Nonetheless, Binance soon clarified that going forward, Signature bank would only handle crypto transactions of $100,000 or more, precluding the vast majority of retail clients. Nonetheless, Binance's access to the SWIFT network remains intact:
"One of our fiat banking partners, Signature Bank, has advised that it will no longer support any of its crypto exchange customers with buying and selling amounts of less than 100,000 USD as of February 1, 2023. This is the case for all of their crypto exchange clients. As a result, some individual users may not be able to use SWIFT bank transfers to buy or sell crypto with/for USD for amounts less than 100,000 USD."
Since Signature bank is a major financial institution catering to the crypto sphere, the negative ramifications of this move on Bitcoin and other cryptocurrencies cannot be denied.
I see two scenarios:
1️⃣Signature is just a crap bank and falling apart, so this is nothingburger FUD.
2️⃣Signature is under regulatory pressure and ended USD transfers for retail to lower risk. If this, then the concern is these restrictions spread to other banks/exchanges.
— kamikaz Ξ (@kamikaz_ETH) January 22, 2023
Even so, Bitcoin has registered only a muted reaction to this development, retreating from a recent high of $23,362 to trade at $22,740 at present. However, we believe that much more weakness lies ahead.
The 25-delta put-call skew measures the implied volatility (an indication of demand) of 25-delta puts against calls. As a refresher, an at-the-money option has a delta of 50. So, 25-delta options have a 25 percent rough probability of expiring in the money. The chart above illustrates Bitcoin's skew for 25-delta options that expire in around 180 days. Notice the fact that the skew just turned positive, indicating heightened demand for put options. Also, take note of the fact that the last time this measure printed a positive reading was back in April 2022, just ahead of Bitcoin's major downward leg. In our opinion, this constitutes a compelling case for further downward price action.
As Bitcoin rallied this week, many market participants pronounced that a cyclical bottom had been formed. We've continued to express skepticism on this count. While we do expect Bitcoin to bottom in Q1 2023, our conviction will only solidify once the world's premier cryptocurrency is able to bag its average bear market loss of at least 84.5 percent relative to the all-time high of around $69,000, which corresponds to a price level of around $11,000.
