data taken at 9:49am 13/11/2020
Written by: Yves, Head of Trading at Wirex
The Bitcoin price (BTC/USD) moved further up, reaching $16,494, a level that was last seen on January 7th, 2020. The momentum is still very strong, and the overall movement since October this year is comparable to the best positive trends observed in June 2019, or December 2017. Furthermore, the BTC/USD price was clearly more resilient than Gold (XAU/USD) this week. Although both performed positively at the beginning of month, driven by the Covid-19 and the US elections uncertainty, BTC/USD held its ground around the $15,000 levels and slowly resumed its bullish trend, while XAU/USD lost nearly 5% on Monday.
News that a Covid-19 vaccine is within reach sent XAU/USD $100 lower, and the equity markets higher. The S&P500 index opened 3.4% above Friday’s close on Monday. The enthusiasm was short-lived as stocks gradually retrieved back to last week’s levels: the hopes to see the vaccine available sooner than later were mitigated by its complicated distribution. Regardless of the good or bad news, Bitcoin broke away from Gold, to the upside. And as the negative-yielding debt hit a new record high this week (“$17 trillion of investments-grade debt”), it almost looks like Bitcoin could be a more reasonable safe-haven than gold.
Another reason for the singularity of the Bitcoin price movement is obviously explained by the prospect of a faster mainstream adoption. Paypal’s crypto service went live yesterday for “all eligible account holders in the U.S.”. Also, on the fundamental side, the DeFI economy is looking for further momentum as the number of BTCs locked reached a new high: 175m BTCs locked this week (source: defipulse).
In the meantime, from the supply side, miners are still expecting the price of Bitcoin to keep on rising. The Q3 results of the few publicly traded mining companies show their commitment to invest in better hardware (ASICs): Marathon Patent Group, the “largest publicly traded Bitcoin miner in the Notrth-America”, announced yesterday that it “generated $650,000 in Bitcoin revenue, its largest quarterly Bitcoin revenue in history”, strengthened its balance sheet, increased its inventory and invested to acquire the latest generation of ASIC hardware. It is aiming for an 11-fold increase of its revenues quarter-to-quarter next year.
Gold XAU/USD performance (in % in Red on Y axis) versus Bitcoin BTC/USD performance (in % in Blue on Z axis). Both performances have different scales.
On the derivatives side, the Bitcoin Open Interest (OI) by Strike, published by skew.com, shows very little open interest between the $16,000 and the $18,000 strikes. The OI around the $16,000 could act as a new support for the Bitcoin price, with option buyers either defending the position, or “trading positive gamma”. Trading positive gamma consists of:
Step 1: selling Bitcoin at à price above the option’s strike to hedge the delta exposure. The sale would cover the loss of the option’s value if the price goes down.
Step 2: buying back the Bitcoin sold in step 1, when the price goes below the option’s strike, to hedge the delta exposure. The purchase would realise a profit.
This is the simplest option-based mean-reverting strategy that could contribute to dampen volatility around the $16,000 and $18,000 strikes. The options market suggests that there could be very little resistance between the $16,000 and the $18,000 levels.
Although there have been serious call option buyers around the $34,000 strike levels, it is much more unlikely now for the market to reach such levels in 40 days. At least the Open Interest distribution across strikes clearly signals that the extreme risk is on the upside. This risk would translate into a bull panic similar to the December 2017 scenario.