In this week’s Bitfinex Alpha, we explore how Bitcoin reached a new year-to-date high of over $42,000 on December 4th and its strongest monthly close since March 2022. We attribute this surge to a culmination of various factors, including a notable shift in the dynamics of the futures market compared to the spot market.
In our analysis of Cumulative Volume Delta, we saw an increase in leverage – usually a sign to exercise caution – but simultaneously a decline in open interest, especially on the short side. Further, the futures market was showing resilience on downswings, compared to much more muted activity in the spot market. Heavy buying in the futures market also wiped out shorts across both BTC and ETH markets, further contributing to upward pressure.
While these phenomena are driving the price upwards, we show that the downside risk should not be ignored. BTC is now trading above the one, two, three, five and seven-year Realised Price bands. While these levels are now effectively providing support for BTC, we see that a breach of the three-year Realised Price, in particular, poses a risk – albeit remote – of market capitulation.
Positive BTC price dynamics are also taking place against a backdrop of strong economic data, underpinned by a rebound in US consumer confidence. That said, there are some signs of stress in the banking sector, where has seen a decrease in profits due to rising loan provisions and unrealised investment losses. The US economy, however, remains robust, with 5.2 percent growth reported in Q3, driven by increased business investments and state and local government spending. We now believe there is potential for an interest rate cut by the end of May 2024. This view is reinforced by a fall in inflation to now its lowest level in over a year and resilient consumer spending and increasing income.
In crypto news last week, the Philippines’ Securities and Exchange Commission (SEC) said it was taking action against Binance due to non-compliance with registration and licensing requirements. It said it would give three months for Filipino users to withdraw their investments and said it would also request Google and Meta to ban Binance ads in the Philippines. In another significant development, Coinbase informed certain of its users about a subpoena from the Commodities Futures Trading Commission (CFTC) that might mean that it has to share account information.
Reports suggest that the subpoena might target users with accounts on both Coinbase and Bybit as part of the CFTC’s broader actions against crypto exchanges for regulatory non-compliance.
Grayscale, a leading crypto asset management firm, is gearing up for competition in the Bitcoin ETF market with a key hire from Invesco who has deep expertise in developing ETF products and who will lead Grayscale’s distribution and partnerships. Lastly, we report on how the Chicago Mercantile Exchange’s BTC and Ether Futures are showing a widening spread between next month and front month futures, with futures prices also currently exceeding spot prices. This is interpreted as a sign of increased institutional investor interest in taking leveraged bullish positions, especially ahead of an announcement on a spot Bitcoin ETF.
Happy Trading!
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