In October, the price of Bitcoin (BTC) soared 26.5%, with multiple indicators hitting one-year highs, including BTC futures premium and grayscale GBTC discount.

Therefore, making a bearish thesis for BTC is challenging as the data reflects the recovery period following the FTX-Alameda Research debacle and is also affected by the recent rate hike by the Federal Reserve.

Despite the positive indicators, Bitcoin prices are still around 50% below the all-time high of $69,900 set in November 2021. By comparison, gold is trading just 4.3% below its $2,070 level since March 2022. This stark disparity undermines the significance of Bitcoin’s 108% gain so far this year and highlights the fact that the adoption of Bitcoin as an alternative hedging tool is still in its early stages.

It is important for investors to analyze the macroeconomic environment before deciding whether improvements in Bitcoin futures premium, open interest, and GBTC fund premium herald a return to normalcy or are the first signs of institutional investor interest.

US budget woes fuel institutional hopes for Bitcoin

On October 30, the U.S. Treasury Department announced plans to auction $1.6 trillion in debt within the next six months.But, that The key factor According to CNBC, what needs to be watched is the size of the auction and the balance between short-term Treasury bills and long-term notes and bonds.

Billionaire and Duquesne Capital founder Stanley Druckenmiller criticized Treasury Secretary Janet Yellen’s focus on short-term debt, calling it “the biggest mistake in Treasury history.” An unprecedented rise in debt ratios in the world’s largest economy has prompted Druckenmiller to praise Bitcoin as an alternative store of value.

The surge in Bitcoin futures open interest, which reached its highest level since May 2022 at $15.6 billion, can be attributed to institutional demand driven by inflation risks in the economy. It is worth noting that CME has become the second largest Bitcoin derivatives trading venue, with a trading volume of Bitcoin futures reaching US$3.5 billion.

Additionally, Bitcoin futures contango, which measures the difference between the two-month contract and spot prices, has reached its highest level in more than a year. These fixed-month contracts typically trade slightly higher than the spot market, suggesting sellers are demanding more funds to delay settlement.

Bitcoin 2-month futures annualized premium.Source: Lavitas

Demand for leveraged BTC long positions has increased significantly, with the October 31 futures contract premium jumping from 3.5% to 8.3%, breaking through the 5% neutral to bullish threshold for the first time in 12 months.

Grayscale’s GBTC fund discount narrows the gap to equivalent underlying BTC holdings, further enhancing speculation on institutional demand.The instrument was trading at a 20.7% discount on September 30, but has since reduced this deficit to 14.9% as investors anticipate a higher likelihood of spot Bitcoin exchange-traded funds (ETFs) being approved in the U.S.

Not everything is rosy for Bitcoin, exchange rate risks loom

While the data seems undeniably positive for Bitcoin, especially compared to previous months, investors should be cautious about the data provided by exchanges, especially when dealing with unregulated derivatives contracts.

US interest rates surged to 5.25% and currency risk escalated post-FTX, making the 8.6% Bitcoin futures premium less bullish. In comparison, CME Bitcoin has an annualized premium of 6.8%, Comex gold futures trade at a 5.5% premium, and CME S&P 500 futures trade at a 4.9% premium to spot prices.

Related: Will Weakness in Magnificent 7 Stocks Spread to Bitcoin Price?

From a broader perspective, the Bitcoin futures premium is not too high, especially considering that Bloomberg analysts gave a 95% chance of approval of a Bitcoin spot ETF. Investors are also concerned about widespread risks in the cryptocurrency market, highlighted by U.S. Senator Cynthia Lummis calling on the Justice Department to take “swift action” against Binance and Tether.

The approval of a spot Bitcoin ETF could trigger selling pressure on GBTC holders. After years of restrictions from grayscale administration and a hefty 2% annual fee, some of the $21.4 billion in GBTC holdings will finally be able to exit their positions at face value. In essence, Bitcoin’s positive data and performance reflect a return to the mean rather than over-optimism.