Last week saw record liquidations of long positions in the crypto markets after the initiation of legal action by the SEC against Binance and Coinbase.
This was revealed in the latest Bitfinex Alpha report, which states that sharp downward movements in Bitcoin’s price triggered liquidations of long positions totaling $348 million.
The report states that the news flow related to the SEC’s lawsuit against Coinbase and Binance clearly shocked the market, but would not have had a lasting impact, when analyzing the behavior of options traders. In fact, the latter do not seem to expect much further movement in the short term.
Summary
The comparison with the S&P 500
Perhaps even more interesting is the comparison of BTC’s price performance with that of the S&P 500 index, which is the main stock market index in the United States.
In fact, the report reveals that Bitcoin appears to be increasingly undervalued when compared to the S&P 500.
Using the regression to the least squares of the last 200 days, BTC’s reference value would be $27,550, compared to the current level of about $26,000. Practically, its current price is 8% lower than Bitfinex’s estimate.
On the other hand, Bitcoin’s correlation with the S&P 500 has cooled quite a bit recently, but historical trends show that this decorrelation may not last long.
Only a handful of times in its entire history has this level of correlation been so low, while now it appears that the level of correlation between Bitcoin and gold is quite high.
On the Alpha report, Bitfinex analysts write:
“Historically, a move higher in the BTC-Gold correlation precedes a similar move in the BTC-S&P500 correlation, heralding hope for a reconciliation between Bitcoin and S&P 500, and potentially triggering a ‘catch-up’ rally in the coming months.”
The next crypto scenario after the SEC’s actions against Binance and Coinbase
The scenario that seems to be emerging from this analysis is that of a continuation for a while longer of the long phase of lateralization that began in the second half of March, with perhaps a recovery in the near term of that $27,000 level around which Bitcoin’s price has been hovering for almost three months now.
Thereafter, as this phase inevitably comes to an end, the price of Bitcoin may again decorrelate from that of gold, and correlate again with that of the S&P 500.
However, what is not known is when such a scenario might occur, since there are no signs that the end of lateralization is imminent.
On the contrary, taking a look at the historical data, it is possible that Bitcoin’s price is still in the midst of the classic lateralization phase between a bear-market and a new bullrun, which could last for more than a year.
Moreover, when the trend of its price returns to a correlation with that of the S&P 500, it is not certain that the trend will be upward, although after the real crash of 2022, it is not easy to imagine that the S&P 500 index could collapse again.
The comment of Bitfinex analysts
Bitfinex analysts commented on the data that emerged from their report saying:
“Bitcoin (BTC) is currently undervalued compared to the S&P 500, based on a metric that conducts an Ordinary Least Squares (OLS) regression analysis of the relationship between Bitcoin and the S&P 500 over the past 200 days.
Despite the AI-fuelled rally in US equity markets, Bitcoin is trading at around $25-26,000, stubbornly below its estimated fair value of $27,550, suggesting an unseemly discount of over eight percent. However, even though Bitcoin’s correlation with the S&P 500 has cooled, historical trends demonstrate this should not last long. In historical terms, it has only been this low a handful of times, and is taking place as the BTC correlation with gold has been increasing.
Historically, a move higher in the BTC-Gold correlation precedes a similar move in the BTC-S&P 500 correlation, heralding hope for a reconciliation between Bitcoin and S&P 500, and potentially triggering a ‘catch-up’ rally in the coming months.”
Binance and Coinbase: reaction to the SEC’s lawsuit
These days many are pointing out that the price of Bitcoin has not reacted particularly badly to the news of the SEC’s lawsuit against both Binance and Coinbase.
First of all, the price has not fallen all the way below $25,000, which seems to be the real major support at this time. The low touched three times was about $25,400, which is close to support but still significantly higher. Moreover, it was touched only very briefly.
Moreover, after bouncing from $25,400 it returned around $26,000, which is a level already touched twice in May.
Finally, it did not fall back to the level prior to the upward movement on 17 March that effectively kicked off the long period of lateralization.
However, it is also true that in the last three months it has also managed to rise above $31,000, and this is a price that at this specific moment still seems far away.
So the difficulties are there, but they seem minor, which is to say, business as usual for such a volatile asset.
However, the same cannot be said of some altcoins, especially those involved in the SEC lawsuit.
In fact compared to seven days ago BNB (Binance coin) is at -15%, ADA (Cardano) is at -20%, SOL (Solana) is at -23%, and MATIC (Polygon) is at -22%. Whereas Bitcoin is at +1%, and Ethereum at -3.6%.
Therefore, there has been a real disconnect in Bitcoin these days from altcoins, and especially from what the SEC considers unregistered securities.
The trend over the long term
The real big problem therefore concerns altcoins, and in particular those that risk having to be delisted from crypto exchanges operating in the United States.
Indeed, if the SEC’s approach wins out, the listing of cryptocurrencies that are considered unregistered securities on exchanges could be effectively banned in the US by law.
Although the delisting would only affect US users, and would not affect DEXs at all, the risk is that a lot of global liquidity on the exchange pairs of those tokens will still be lacking.
The markets are already discounting this risk on the price of BNB, ADA, SOL, MATIC, etc., although to be fair, the losses of the last few days do not seem to point to a particularly high risk of delisting.
Moreover, in theory it would not be unreasonable to imagine that some of these cryptocurrencies might even get SEC approval, and thus return to exchanges as registered security at a later date.
The problem is that crypto exchanges are not allowed to list securities, so they would return to other exchanges.
The final solution might be for crypto exchanges to also obtain authorization to list securities, thus going back to square one.
However, it is important not to forget that it is by no means a foregone conclusion that the SEC will grant such approvals, so the cryptocurrencies considered securities and the crypto exchanges might not go back to the way they were before.
Instead, if the SEC loses, everything will remain as it is now, and a major price rebound could easily occur.
