data taken at 10:08am 07/08/2020
Written by: Yves, Head of Trading at Wirex
The Bitcoin price (BTC/USD - source Bitstamp) is up by another 6.5% this week but the fast pace of gains that started on July 20th seems to be slowing down. The market had a swift correction on August 2nd, diving from the weekly high at $12,100 to the weekly low at $10,559, all within 30 minutes. The price lost $900 in less than 5 minutes. The correction is a hard reminder that the Bicoin market is still very volatile, especially over the week-end when liquidity tends to be reduced. A very simple analysis relayed by Cointelegraph actually shows that statistically, Sundays would be “the perfect time to buy the Bitcoin Dip” , and then most likely take profit as soon as the following Monday.
The dip could be related to the expiration of the July monthly options contracts on July 31st, the last Friday of the month. Indeed Bitcoin options are typically cash settled, meaning gains and losses are settled in Bitcoin. Furthermore, the July contracts are typically available for trading a month earlier in June and the BTC/USD price increased by close to 23% in July. Given the large increase of the options open interest last month, it is possible that the move might be related to large profits being unwound.
Skew.analytics reports that the BTC/USD options open interest reached a new all-time high this week, exceeding $2bln for the first time . This new high, measured in BTC instead of US dollars, is actually comparable to the peak seen at the end of June this year. Overall, the options market volume has definitely reached a new cycle since the Bitcoin halving. It certainly contributes to the increased Bitcoin price volatility. What is true for options is also true for futures. The CME futures open interest is continuously reaching new heights.
Finally, the trend is also applicable to the loans market as Genesis Capital, a major broker of cryptocurrencies, reports this week that “Active loans outstanding increased 118% from Q1, and cumulative originations increased for a ninth consecutive quarter, with total originations reaching $8.4B since March 2018”
Total BTC Options Open Interest (source: https://analytics.skew.com/ )
Again, the Ether price (ETH/USD) outperformed the Bitcoin price with a further 15% increase this week . ETH/USD grew by an impressive 44% over two weeks. Still the market seems to be losing steam. We mentioned in the previous weeks the impressive growth of the DeFi projects, and mitigated last week the impact of this growth over the Bitcoin price, namely through the high demand of the ERC-20 WBTC token as either collateral or a candidate for borrowing/lending transactions. This week, the Bloomberg August outlook deemed the ETH/USD performance “more speculative vs. Bitcoin”. They justify their position solely by the growing “competition from similar crypto platforms” to Ethereum “and about 6,000 tradable coins”, and the favourable Bitcoin supply & demand balance.
Their report also notes the growing correlation between Bitcoin and gold to explain the breach of the $10,000 level. They note that: “the highest-ever 52-week Bitcoin-to-gold correlation indicates the crypto is evolving into the digital-asset equivalent of the precious metal, in our view”. The trend is expected to continue with the ongoing Central Banks’ quantitative easing. Basically, as they say, “something needs to go wrong to end mainstream Bitcoin adoption”.
On the retail side (Wirexapp), the interest in BTC was positive with a ratio of BTCs bought versus BTCs sold at 1.21. Also the Stellar Lumens (XLM) interest was also positive with a ratio of 1.23. Ripple’s (XRP) interest was higher this week with a ratio at 1.7: XRP outperformed BTC by nearly 14% this week. The move could be considered speculative as Ripple reported sales of 32.55 million USD of XRP in Q2 versus 1.75 million USD the previous quarter. The main positive announcement of the report consists of increased sales that are reportedly done “over-the-counter”, to inject liquidity in RippleNet, answering a growing demand from financial institutions. Ethereum’s interest is neutral this week on Wirexapp.
The above is an opinion piece and therefore should not be taken as financial advice. Please do your own research thoroughly when looking at Cryptocurrency.