Market Update

The last few weeks have played out pretty much exactly the way the halvening bulls said it would: priced-in or not, they say, we are in the first inning of a multi-year bull market for BTC. It is undeniable that the recent rally feels very different from last February’s:

1. Open interest on the more popular derivatives instruments stands at about 50% of what they were last time BTC flirted with $10,000.
2. The futures curve is completely flat, with annualized basis under 4% across maturities.
3. Arb opportunities are opened wide across derivatives exchanges.

1&2 are particularly odd considering BTC rallied 100% in two months. So what is the deal this time around? I have a few theories:

• This rally comes on the heels of a crash of historical proportion that brought a lot of pain to leverage users. Chief among them: miners. Miners do not trade derivatives themselves, but they are very hungry for USD loans collateralized by BTC. Such loans are hedged via a short spot/long futures position. Unabated demand for those loans gave us the constant contango we witnessed last year, and the subsequent violent shift into backwardation mid-March. As BTC value fell suddenly, the less collateralized USD loans went into liquidation, forcing dealers to unwind the short spot/long futures positions. This is how you move from a $200 contango to a $500 backwardation on the March 2020 futures, with just two weeks to expiry. One could assume that the current absence of contango is the sign that miners are not back in the USD borrowing market yet.
• The wide arb between derivatives platforms means that arbitrage funds and liquidity providers have repriced the credit risk attached to trading on multiple unregulated platforms. Nothing like being unable to withdraw millions of dollars of crypto during a crash to remind you that credit risk is alive and well.
• The near-zero funding rates on perp swap points to the fact that there is little buying demand through OTC desks. If OTC desks were getting lifted in size by their end clients, they would be hedging with the most liquid instrument available, sending perp funding rates to high single digits, at the very least.

All this, compounded by the fact that there have never been more USD stablecoins sitting idle in spot exchange wallets, tells me that there is a lot of dry powder out there. This will not necessarily translate into a sustained bull run; equities are due for a severe repricing that could take BTC with it, at least temporarily. All in all, the BTC narrative has rarely been as strong as it is now, the recent Paul Tudor Jones endorsement being just the icing on the cake.

Legal Disclaimer

This post is being distributed by CoinList Lend, LLC, a subsidiary of Amalgamated Token Services Inc. (together with its subsidiaries, “CoinList”). All hypotheses, opinions and theories are those of the author and do not necessarily reflect the views or positions of CoinList. Nothing in this post shall constitute or be construed as an offering of securities or as investment advice or investment recommendations (i.e., recommendations as to whether to enter or not to enter into any transaction involving any specific interest or interests) by CoinList or any of its affiliates or a recommendation as to an investment or other strategy. These types of investments involve a high degree of risk (including risk of total loss) and potential investors should consult with their own advisors. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical facts and may be “forward looking statements.” Forward looking statements are based on expectations, estimates and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated.CoinList is not a bank or investment advisor and does not provide any such services, nor does it offer legal or tax advice. Virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to Federal Deposit Insurance Corporation or Securities Investor Protection Corporation protections.