Data highlights Bitcoin’s potential path to $40K amid global economic turbulence

November 7, 2023 Coin Telegraph

<div>Data highlights Bitcoin's potential path to K amid global economic turbulence</div>

Robust BTC derivatives data indicates strong demand for leverage longs.

Bitcoin (BTC) has been trading within a narrow 4.5% range over the past two weeks, indicating a level of consolidation around the $34,700 mark.

Despite the stagnant prices, the 24.2% gains since Oct. 7 instill confidence, driven by the impending effects of the 2024 halving and the potential approval of a Bitcoin spot exchange-traded fund (ETF) in the United States.

Investors worry about the bearish global economic outlook

Bears expect further macroeconomic data supporting a global economic contraction as the U.S. Federal Reserve holds their interest rate above 5.25% in order to curb inflation. For instance, on Nov. 6, China exports shrank 6.4% from a year earlier in October. Furthermore, Germany reported October industrial production down 1.4% versus prior month on Nov. 7.

The weaker global economic activity has led to WTI oil prices dipping below $78 for the first time since late July, despite the potential for supply cuts from major oil producers. Remarks by U.S. Federal Reserve Bank of Minneapolis President Neel Kashkari on Nov. 6 has set a bearish tone, prompting a 'flight-to-quality' response.

Kashkari stated:

“ We haven’t completely solved the inflation problem. We still have more work ahead of us to get it done."

Investors have sought refuge in U.S. Treasuries, resulting in the 10-year note yield dropping to 4.55%, its lowest level in six weeks. Curiously, the S&P 500 stock market index has reached 4,383 points, its highest level in nearly seven weeks, defying expectations during a global economic slowdown.

This phenomenon can be attributed to the fact that the firms within the S&P 500 collectively hold $2.6 trillion in cash and equivalents, offering some protection as interest rates remain high. Despite increasing exposure to major tech companies, the stock market provides both scarcity and dividend yield, aligning with investor preferences during times of uncertainty.

Meanwhile, Bitcoin's futures open interest has reached its highest level since April 2022, standing at $16.3 billion. This milestone gains even more significance as the Chicago Mercantile Exchange (CME) solidifies its position as the second-largest market for BTC derivatives.

Healthy demand for Bitcoin options and futures

Recent use of Bitcoin futures and options have made media headlines. The demand for leverage is likely fueled by what investors believe are the two most bullish catalyst for 2024: the potential for a spot BTC ETF and the Bitcoin halving.

One way to gauge market health is by examining the Bitcoin futures premium, which measures the difference between two-month futures contracts and the current spot price. In a robust market, the annualized premium, also known as the basis rate, should typically fall within the 5% to 10% range.

*Bitcoin 2-month futures annualized premium (basis). Source: Laevitas.ch*

Notice how this indicator has reached its highest level in over a year, at 11%. This indicates a strong demand for Bitcoin futures primarily driven by leveraged long positions. If the opposite were true, with investors heavily betting on Bitcoin's price decline, the premium would have remained at 5% or lower.

Another piece of evidence can be derived from the Bitcoin options markets, comparing the demand between call (buy) and put (sell) options. While this analysis doesn't encompass more intricate strategies, it offers a broad context for understanding investor sentiment.

*Deribit BTC options put-to-call 24h volume ratio. Source: Laevitas.ch*

Over the past week, this indicator has averaged 0.60, reflecting a 40% bias favoring call (buy) options. Interestingly, Bitcoin options open interest has seen a 51% increase over the past 30 days, reaching $15.6 billion, and this growth has also been driven by bullish instruments, as indicated by the put-to-call volume data.

As Bitcoin's price reaches its highest level in 18 months, some degree of skepticism and hedging might be expected. However, the current conditions in the derivatives market reveal healthy growth with no signs of excessive optimism, aligning with the bullish outlook targeting $40,000 and higher prices by year-end.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Costo sells out of gold bars, but is it a better investment than Bitcoin?

September 29, 2023 Coin Telegraph

Bullion

Gold bars recently sold out at Costco, reflecting investors’ souring mood about the economy. Is there a silver lining for Bitcoin?

Costco has made headlines this week after it rapidly sold out of gold bars. In times of economic uncertainty and rising inflation, it's no surprise that investors are turning to traditional safe-haven assets like gold. The question is whether gold’s performance will eventually catapult its price above $2,050, a level last seen in early May.

In the past 12 months, the price of gold has surged by an impressive 12%. This rally has been partially fueled by the Federal Reserve's efforts to combat inflation by maintaining higher interest rates, a move that benefits scarce assets like gold. While gold's performance is commendable, it's essential to put it into perspective.

*Gold (yellow) vs. Bitcoin (orange), S&P 500 (green) and WTI oil (black), last 12 months. Source: TradingView*

Over the same period, gold's returns have roughly matched those of the S&P 500, which saw a gain of 15.4%, and WTI oil, which increased by 12%. However, these gains pale in comparison to Bitcoin's staggering 39.5% rise. Still, it's important to note that gold's lower volatility at 12% makes it an attractive choice for investors looking to manage risk.

Risk-reward scenarios favor gold

One of gold's strongest selling points is its reliability as a store of value during times of crisis and uncertainty. Gold's status as the world's largest tradable asset, valued at over $12 trillion, positions it as the primary candidate to benefit from capital inflows whenever investors exit traditional markets like stocks and real estate.

*Gold (yellow) vs. Bitcoin (orange), S&P 500 (green) and WTI oil (black), Feb/Mar 2020. Source: TradingView*

For example, at the height of the COVID-19 pandemic. In the 30 days leading up to March 24, 2020, gold only dipped by 2.2%.

According to data from Gold.org, central banks have been net buyers of gold for the second consecutive month, adding 55 tons to their reserves, with notable purchases by China, Poland and Turkey.

Bloomberg reported that Russia is planning to bolster its gold reserves by an additional $433 million to shield its economy from the volatility of commodity markets, especially in the oil and gas industries.

*200 years of gold production. Source: Visual Capitalist*

Taking a closer look at production figures, Visual Capitalist estimates that approximately 3,100 tonnes of gold were produced in 2022, with Russia and China accounting for 650 tonnes of this total. The World Gold Council also predicted that if gold prices continue to rise, total production could reach a record high of 3,300 tonnes in 2023.

One crucial metric to consider when evaluating gold's investment potential is its stock-to-flow ratio, which measures the production of a commodity relative to the total quantity in existence.

Gold's stock-to-flow has remained stable at around 67 for the past 12 years. In contrast, Bitcoin has experienced three scheduled halvings, effectively reducing its issuance, and currently boasts a stock-to-flow ratio of 59. This suggests that Bitcoin has a lower equivalent inflation rate compared to the precious metal.

Bitcoin can outperform gold even with lower inflows

Bitcoin’s performance could surpass gold’s as the U.S. government approaches a shutdown due to reaching the debt limit, causing investors to seek alternative scarce assets. Bitcoin’s $500 billion market capitalization makes it easier for the price to jump even if its inflow is much smaller. Additionally, central banks could be compelled to sell their gold holdings to cover expenses, further boosting Bitcoin's appeal.

There's also the possibility of new gold discoveries. While gold remains a stalwart in the world of safe-haven assets, Bitcoin's impressive gains and lower equivalent inflation rate make it a strong contender for investors seeking alternative stores of value. Despite this, the ongoing economic uncertainty and the Federal Reserve's monetary policies will continue to benefit both assets.

Bitcoin futures open interest jumps by $1B: Manipulation or hedge?

September 19, 2023 Coin Telegraph

bitcoin futures

Bitcoin spiking above $27,200 amid a big jump in open interest has some analysts asking whether BTC’s price is being manipulated.

Bitcoin’s (BTC) open interest on derivatives exchanges experienced a sudden surge of $1 billion on Sept. 18, prompting investors to question whether whales were accumulating in anticipation of the unsealing of Binance’s court filings.

However, a closer look at derivatives metrics suggests a more nuanced picture, as the funding rate did not exhibit clear signs of excessive buying demand.

The decision to unseal these documents was granted to the United States Securities and Exchange Commission, which had accused Binance of non-cooperation despite previously agreeing to a consent order related to unregistered securities operations and other allegations.

*BTC futures aggregate open interest, USD (green, left). Source: CoinGlass*

The open interest spiked to $12.1 billion, while Bitcoin’s price concurrently increased by 3.4%, reaching its highest point in over two weeks at $27,430.

However, investors soon realized that, aside from a comment by the Binance.US auditor regarding the challenges of ensuring full collateralization, there was little concrete information revealed in the unsealed documents.

Later in the day, Federal Judge Zia Faruqui rejected the SEC’s request to inspect Binance.US’ technical infrastructure and share additional information. Nevertheless, the judge stipulated that Binance.US must furnish more details about its custody solution, casting doubt on whether Binance International ultimately controls these assets.

By the end of Sept. 18, Bitcoin’s open interest had receded to $11.3 billion as its price dropped by 2.4% to $26,770. This decline indicated that the entities behind the open interest surge were no longer inclined to maintain their positions.

These whales were likely disappointed with the court’s outcomes, or the price action may not have unfolded as expected. In any case, 80% of the open interest increase disappeared in less than 24 hours.

Futures’ buyers and sellers are matched at all times

It can be assumed that most of the demand for leverage was driven by bullish sentiment, as Bitcoin’s price climbed alongside the increase in open interest and subsequently plummeted as 80% of the contracts were closed. However, attributing cause and effect solely to Binance’s court rulings seems unwarranted for several reasons.

Firstly, no one anticipated that the unsealed documents would favor Binance or its CEO, Changpeng “CZ” Zhao, given that it was the SEC that had originally requested their release. Additionally, the Bitcoin futures contract funding rate, which gauges imbalances between long and short positions, remained largely stable throughout this period.

*BTC futures average 8-hour funding rate. Source: CoinGlass*

If there had indeed been an unforeseen demand surge of $1 billion in open interest, primarily driven by desperate buyers, it’s reasonable to assume that the funding rate would have spiked above 0.01%. However, quite the opposite unfolded on Sept. 19, as Bitcoin’s open interest expanded to $11.7 billion, while the funding rate plunged to zero.

With Bitcoin’s price rallying above $27,200 during this second phase of open interest growth, it becomes increasingly evident that, regardless of the underlying motives, the price pressure tends to be upward. While the exact rationale may remain elusive, certain trading patterns could shed light on this movement.

Market makers’ hedge could explain OI spike

One plausible explanation could be the involvement of market makers in executing buy orders on behalf of substantial clients. This would account for the initial enthusiasm in both the spot market and BTC futures, propelling the price higher. After the initial surge, the market maker becomes fully hedged, eliminating the need for further buying and leading to a price correction.

During the second phase of the trade, there is no impact on Bitcoin’s price, as the market maker must offload the BTC futures contracts and purchase spot Bitcoin. This results in a reduction in open interest and may disappoint some participants who were anticipating additional buying fervor.

Rather than hastily labeling every “Bart” formation as manipulation, it is advisable to delve into the operations of arbitrage desks and carefully analyze the BTC futures funding rate before jumping to conclusions. Thus, when there is no excessive demand for leveraged long positions, an increase in open interest does not necessarily signify a buying spree, as was the case on Sept. 18.

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Buffett and Ackman take opposing sides on Treasury yields — What does it mean for Bitcoin?

August 7, 2023 Coin Telegraph

ackman

Two investment moguls are betting on different directions for inflation and Treasury yields, with potentially negative impacts on Bitcoin.

Warren Buffett and Bill Ackman are two of the most successful investors in the world, but they have taken opposing views on the bond market in recent months.

Only one can be right. Billionaire investor Bill Ackman says he is shorting US Treasuries. if long-term inflation is 3% not 2%, the 30y Treasury yield could rise to 5.5%. In contrast, Warren Buffett has announced buying positions in 10y US Treasuries. Shorting US 10y bonds seems… pic.twitter.com/X2zSPzJ91Y
— Holger Zschaepitz (@Schuldensuehner) August 5, 2023

Buffett has been buying short-term Treasury bills, while Ackman has been shorting long-term Treasury bonds. Could both of these investors be right?

Buffett is the chairman and CEO of Berkshire Hathaway, one of the world’s largest investment holding companies. Buffett’s worth is estimated to be over $100 billion. Ackman is an American hedge fund manager, activist investor and the founder and CEO of Pershing Square Capital Management, a hedge fund with over $20 billion in assets under management.

*U.S. Treasury 1-year yield vs. 20-year yield. Source: TradingView and Cointelegraph*

There is the possibility that short-term and long-term interest rates will move in different directions. For example, if the Federal Reserve raises short-term rates in an effort to combat inflation, long-term rates could fall. This would be good for Buffett, who is buying short-term bonds, but bad for Ackman, who is shorting long-term bonds.

Another possibility is that Buffett and Ackman are simply taking different views on the risk of inflation. Buffett believes that inflation is not a major threat and that short-term Treasury bills offer a safe haven from market volatility. Ackman, on the other hand, believes that inflation is a serious risk and that long-term Treasury bonds are overvalued.

Buffett and Ackman will both probably get what they want

There is a possibility that Buffett and Ackman are both right, at least in the short term, meaning it is possible that both short-term rates and long-term rates rise. This would happen if the Federal Reserve raises interest rates in an effort to combat inflation but the market does not believe that the Fed will be able to raise rates enough to significantly slow down inflation.

In this scenario, Buffett would benefit from his short-term Treasury bill investment, while Ackman would benefit from his short position on long-term Treasury bonds. This possibility is supported by the fact that the correlation between bond and stock prices has neared a record high in recent months.

*S&P 500 correlation to the U.S. 10-year Treasury yield (50 days). Source: TradingView*

This means that as bond prices fall, stock prices are likely to rise, likely because investors are selling bonds and buying stocks in anticipation of higher interest rates.

When geniuses fail — Could both investors be wrong?

Of course, it is also possible that both Buffett and Ackman will be wrong. That is, it is possible that short-term and long-term rates will move in the same direction. This would happen if the market believes that the Fed will be able to raise rates enough to significantly slow down inflation. In this scenario, both Buffett and Ackman would likely lose money on their respective investments.

Only time will tell how this debate will play out, and there is no easy answer to the question of who is right. Investors should consider the different investment strategies that Buffett and Ackman use. Buffett is a value investor, while Ackman is a short-seller. These different strategies could also have a significant impact on the performance of their respective investments.

What about the impact on crypto markets?

The U.S. Treasury curve, specifically the spread between the one-year and 20-year note, has significant implications for the broader financial ecosystem, which can indirectly influence the sentiment of Bitcoin (BTC) investors.

A steepening curve, where long-term rates rise faster than short-term rates, often signals expectations of future economic growth and the possibility of rising inflation. In this environment — if both Buffett and Ackman are wrong — Bitcoin could be touted as a hedge against inflation, boosting its attractiveness.

For Bitcoin investors, a flattening curve — meaning both Buffett and Ackman are right — indicates concerns about future economic growth and increased uncertainty and volatility in traditional markets. This would push investors to reduce exposure to cryptocurrencies given that most consider it a speculative asset.

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USD stablecoin premiums surge in Argentina following economy minister’s resignation

July 4, 2022 Coin Telegraph

Coin Telegraph

Argentina has been in a long-standing battle against rising inflation and a continued decline of the peso against the U.S. dollar.

Argentina, a country with one of the highest crypto adoption rates in the world, saw the price of dollar-pegged stablecoins surge across exchanges on Saturday after the abrupt resignation of its Economy Minister, Martin Guzman.

The minister’s shock exit, confirmed on his Twitter account on July 3 via a seven-page letter, threatens to further destabilize a struggling economy battling high inflation and a depreciating national currency.

According to data from Criptoya, the cost of buying Tether (USDT) using Argentinian pesos (ARS) is currently 271.4 ARS through the Binance exchange, which is around a 12% premium from before the resignation announcement, and a 116.25% premium compared to the current fiat exchange rate of USD/ARS.

The local crypto price tracking website has also revealed a similar jump in other USD-pegged stablecoins, including Dai (DAI), Binance USD (BUSD), Pax Dollar (USDP), and Dollar on Chain (DOC).

Argentineans have been piling into crypto as a means to hedge against the country’s rising inflation and a continued fall of the Argentinean peso against the USD dollar.

In 2016, before inflation really took its toll, one USD was only able to buy around 14.72 Argentinean pesos. However, six years later, one USD is able to buy as many as 125.5 ARS.

The extra premium on US-dollar pegged stablecoins is the result of a law passed on September 1, 2019, called Decree No. 609/2019, which has made it virtually impossible for Argentinians to exchange more than $200 in greenbacks per month at the official exchange rate.

It was imposed as a means to prevent the Argentinean peso from free-falling amid a struggling economy. In May, the Argentinean annual inflation rate accelerated for the fourth straight month, hitting 60.7%, according to Trading Economics.

The South American nation has the sixth-highest adoption rate globally, with around 21% of Argentineans estimated to have used or owned crypto by 2021, according to Statista.

In May, Cointelegraph reported that “crypto penetration” in Argentina had reached 12%, double that of Peru, Mexico, and other countries in the region, primarily driven by citizens seeking safe haven against rising inflation.

In addition to Bitcoin, Argentineans have been turning to stablecoins increasingly as a means of storing value in the United States dollar.

Here’s a clever options strategy for cautiously optimistic Bitcoin traders

March 1, 2022 Coin Telegraph

Call

Pro traders often use the risk reversal options strategy to hedge their bets and profit in the case of an unexpected rally.

Bitcoin (BTC) entered an upward channel in early January and despite the sideways trading near $40,000, order book analysts cited "significant buying pressure" and noted that the overall negative sentiment might be heading towards exhaustion.

*Bitcoin/USD price at FTX. Source: TradingView*

Independent analyst Johal Miles noted that BTC's price formed a bullish hammer candlestick on its daily chart on Jan. 24 and Feb. 24, hinting that the longer-term downtrend is close to an end.

However, the rally above $41,000 on Feb. 28 was unable to create strong demand from Asia-based traders, as depicted by the lack of a China-based peer-to-peer Tether (USDT) premium versus the the official U.S. dollar currency.

Currently, there is positive news coming from the potential adoption of crypto by global e-commerce marketplace eBay. On Feb. 27, CEO Jamie Iannone revealed that the tech giant is looking to transition to new payment modes for part of its $85 billion in direct annual volume that is transacted on the platform.

Bitcoin bulls also have a strong case to leave room for upside price surprises if the European Commission plans to isolate Russia from the international SWIFT cross-border payment network system.

In addition to cutting off Russia from SWIFT, the European Commission will "paralyze the assets of Russia's central bank." Whether or not intended, this showcases Bitcoin's decentralization benefits as an uncensorable means of exchange and a store of value.

The risk reversal strategy fits the current scenario

Albeit the popular belief that futures and options are widely used for gambling and excessive leverage, the instruments were actually designed for hedge (protection).

Options trading presents opportunities for investors to profit from increased volatility or obtain protection from sharp price drops and these complex investment strategies involving more than one instrument are known as options structures.

Traders can use the "risk reversal" options strategy to hedge losses from unexpected price swings. The investor benefits from being long on the call options, but pays for those by selling the put. Basically, this setup eliminates the risk of the stock trading sideways but does come with substantial risk if the asset trades down.

*Profit and loss estimate. Source: Deribit Position Builder*

The above trade focuses exclusively on Mar. 31 options, but investors will find similar patterns using different maturities. Bitcoin was trading at $41,767 when the pricing took place.

First, the trader needs to buy protection from a downside move by buying 2 BTC puts (sell) $34,000 options contracts. Then, the trader will sell 1.8 BTC put (sell) $38,000 options contracts to net the returns above this level. Finally, buying 3 call (buy) $52,000 options contracts for positive price exposure.

Investors are protected from a price drop to $38,000

That options structure results in neither a gain or a loss between $38,000 (down 9%) and $52,000 (up 24.5%). Thus, the investor is betting that Bitcoin's price on Mar. 31 at 8:00 am UTC will be above that range while gaining exposure to unlimited profits and a maximum 0.214 BTC loss.

If Bitcoin price rallies toward $56,000 (up 34%), this investment would result in a 0.214 BTC gain. Even though there is no cost associated with this options structure, the exchange will require a margin deposit to cover potential losses.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

hedge