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TI Weekly Research: Uncertainty, Supervision and Risk Control

TI Research
TI Weekly Research: Uncertainty, Supervision and Risk Control From:

The market began to reassess the possible impact of supervision after the volatility skew of Bitcoin and Ethereum returned positive. This week, a mass of market information on long and short flooded everywhere, bringing more uncertainty to the recovering market. Any information will trigger a substantial rise and fall in prices. Currently, from the perspectives of all parties, Bitcoin has become a recognized high-risk asset. Powerful supervision is ready to go or already on the way of regulating and controlling the financial risks. While for Ethereum and other public chains with good application ecology, most of the current regulators are waiting-and-seeing.

"Tightened Strings": Much long and short information, much uncertainty

This week, it's not just regulators who have stated on the crypto asset market. From Trump to Musk, and then to small countries in Central America, the wrestling of all parties on Bitcoin has made the price of Bitcoin sit on a roller coaster for a whole week. Investors who were still in a panic after the "Black Swan" incident on May 19 did not seem to see the end of risk: a word from the big shots would trigger Bitcoin's fluctuation in thousands of dollars.

On June 7th and 8th, the market was really pinched: Firstly, the FBI announced that it had cracked the ransom gang's use of Bitcoin transfer channels and successfully recovered the ransom, which triggered widespread concerns about the security of Bitcoin. Then, the US "prestigious" former president, Trump suddenly stated in an interview that "Bitcoin is a scam" when investors are eagerly awaiting good news. Under the double blow of the two, market confidence once again received a shock, and the price of Bitcoin dropped under $32,000 in response. This brought a chain reaction: Microstrategy, Meitu and other big bitcoin holders are trembling, and Microstrategy is even approaching the "most dangerous moment" and announced to issue bonds again.

Bitcoin price changes in the past 7 days, as of 16:00 on June 11, source:

However, the market trading volume actually changed little on the day. Although both Trump and regulatory agencies from various countries have frequently released bad news for Bitcoin, the price drop did not cause panic selling. On June 7th and 8th, the total trading volume of the Bitcoin market was only $13.97 billion. The market seems to foresee the risk boundary and has taken response measures after the price adjustment.

Bitcoin transactions in the past 30 days, as of 16:00 on June 11, source:

Subsequently, the risk boundary has become increasingly clear. Central American countries (Panama, El Salvador, etc.) began to make proposals for the legalization of Bitcoin, and even passed a bill to legalize Bitcoin for the first time. Russia, Iran and other countries have introduced favorable measures for crypto assets, and the Basel Agreement listed Bitcoin as a "high-risk investment product" rather than an "illegal investment product." Supervision has already showed its attitude: Bitcoin tradings must be within the scope of risk control, and businesses and behaviors that increase market risk will be strictly restricted. After the risk is controlled, payment and transaction businesses will not be subject to too much interference -- this is risk boundary.

After getting the answer, the uncertainty was resolved, and market confidence was restored again. Bitcoin's trading volume rose sharply and exceeded $10 billion for three consecutive days, bringing the price back to the same period last week. At the same time, the weekly trading volume reached $67.5 billion, successfully surpassing Ethereum and regaining the top trading volume in the crypto asset market. From the skewness chart, the current market confidence is at the highest level since May 19.

Changes in Bitcoin options skewness (right), source:

Professional investors also adjusted their expectations for Bitcoin in time. At present, the Bitcoin market has entered a stage of fluctuations in volatility skew. Based on past experience, this often means that the value of the underlying may be underestimated, but the increase space is unknown. This is a neutral and positive news for investors who hold Bitcoin. But for speculators, this week seems to be a lot sadder: the uncertainty under low volatility has caused contract speculators to encounter obvious both long and short.

Changes in the volatility of Bitcoin options in the past 30 days, source:
Bitcoin perpetual contract liquidation, as of 17:00 on June 11, source:

Non-Bitcoin Market: Positive regulatory signals, mixed market performance

Different from the turmoil on Bitcoin, from supervision to investors, all have shown a positive attitude towards public chains such as Ethereum. Ethereum is not included in the "high-risk assets" for the time being. Various regulatory agencies have affirmed the role of public chains in payment activities and hope that it can contribute to the development of the real economy.

Due to strong fundamental support, Ethereum's performance has been relatively stable after the Black Swan incident, with a relatively low amplitude. However, after June 8th, Ethereum has stabilized near the $2,500, which has been lower than last week. The unfriendly attitude of the conservatives represented by Trump towards the crypto asset market and the decentralized payment system have had a certain impact on market prices. Since the speculative sentiment of the Ethereum market is not as good as that of Bitcoin, this means that it may take longer for the influence of external macro factors to be included in the pricing. At the same time, with speculators turning to Bitcoin again, Ethereum spot trading volume this week was $62.8 billion, a decrease of $10 billion compared to last week, and contract volume was $242.1 billion, only about half of Bitcoin contract volume. .

Ethereum price changes in the past 7 days, as of 17:00 on June 11, source:

In the non-Ethereum public chain, Kusama and Solana performed well. The market value of Kusama reached $3.92 billion, and the market value of Solana once again rose to more than $10 billion.

Changes in SOL price in the past 7 days, as of 17:30 on June 11. Source:

It can be confirmed that the uncertainties and risks of public chain tokens with fundamentals are relatively low for supervision, so their risk boundaries are relatively high. The losses caused by regulatory risks will gradually increase as the market develops. Perfection will no longer be significant. For tokens with strong speculative attributes (such as Bitcoin, etc.), regulatory risk is always an important influencing factor. This can be seen from the performance of volatility: with the global regulatory framework becomes clearer, Ethereum has achieved higher expectations, and its volatility skew has steadily turned negative. Despite the recent poor performance, it is clear that the market has underestimated the value of Ethereum in the short term whose near-term appreciation space is worth looking forward to.

TI Research

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