Crypto Corner market update

Written by: Manraj Chandok - Trader Associate, Wirex

Bullish Sentiment within the Cryptocurrency markets is intensifying, with BTC in particular leading a transition to a more speculative market phase. At the time of writing, BTC is trading at $59,296, with a strong 3.5% increase in the last 24 hours. If current market conditions continue to prevail it is likely we will see a test of the resistance at $60K and a potential test of ATH’s within the coming weeks. The significant factor driving the current sentiment is undoubtedly positive news regarding a US Bitcoin ETF, with the SEC reportedly very close to permitting the inaugural BTC Futures ETF to begin trading (Bloomberg).

It is important to outline exactly why the SEC are willing to approve a futures-based Bitcoin ETF, after rejecting numerous applications from prominent market participants for traditional Bitcoin ETF’s. The crucial element is predictably regulation, with the current proposals being based upon futures contracts that are filed under mutual fund guidelines, which according to SEC chairman Gary Gensler provides consumers with “significant investor protections.” The approval of a Bitcoin-based ETF would signal the end of a historic struggle incurred by many a hopeful Cryptocurrency ETF manager, with prominent figures such as the Winklevoss twins (well known for their role in launching Facebook) having failed.

Additionally, it is important to outline exactly why a Bitcoin ETF is such an important step for the Cryptocurrency market. ETF’s (exchange-traded funds) are regulated financial instruments that track the price of their underlying assets e.g., Bitcoin. The significant benefit of ETF’s is that they can be traded via institutional brokerage accounts and investors do not need to trade the tangible asset, meaning investors are safeguarded against the security and logistical risks inherent with digital asset ownership. A flagship Bitcoin ETF would open up Bitcoin ownership to the masses, allowing less technically inclined investors access to assets such as bitcoin. A Bitcoin ETF would also signal leading regulatory bodies such as the SEC are willing to regulate, not ban cryptocurrencies.

Indicators from the Derivatives market show the current bull market phase is transitioning to a more leveraged/speculative regime, with key indicators such as the open interest in Bitcoin futures touching $20.7 Billion, reaching levels only seen during the prior Bitcoin bull run to ATH’s in May. Additionally, the 14-day average Perpetual futures funding rates on BTC have reached 14% (annualised) on Binance, indicating investors in long perpetual futures positions are paying shorts. This implies current BTC Perpetual futures are trading above the mark price, an indicator of a speculative market.

Institutional interest within bitcoin continues to grow steadily, as according to Reuters many of the large institutional cryptocurrency funds have been recording significant inflows of Bitcoin in the prior weeks. This institutional interest can also be seen in the Chicago Mercantile Exchange’s share of BTC futures open interest, which has been growing steadily over the prior weeks and reached 15.51%. This reflects a short term high for the CME’s derivative market share and can be interpreted as a positive signal that Institutions are buying, not selling into this bull run, unlike May which saw a large decrease in CME market share.

The US became the largest Bitcoin mining destination in the world, eclipsing China for the first time according to Cambridge University. The US now hosts 34.5% of Bitcoins Hashrate, a near 430% increase from September 2020. This is partly due to the mining migration caused by Beijing’s cryptocurrency crackdown, which took almost half of the Hashrate of Bitcoin offline.

Finally, the significant pump in BTC price on Wednesday the 6th at 13:11 -13:16 UTC was caused by a large market participant buying $1.6 Billion of BTC within a 5-minute window. Whilst this only represented 4.5% of average daily spot market volume from the last 2 months (Huobi), it was an incredible and slightly bizarre action as the slippage incurred by this single transaction was alarming. The execution of this trade has raised many questions within the Cryptocurrency community, as any professional trader/investor with such resources ought to have been more prudent whilst executing such a large trade. Rumours have been circulating of potential ETF Front-running.