December 21, 2024
CME Bitcoin futures hit record high, but uncertainty looms above K

On November 1, open interest in Bitcoin (BTC) futures on the Chicago Mercantile Exchange (CME) hit a record high of $3.65 billion. This indicator takes into account the value of each contract over the remaining calendar months, where buyers (longs) and sellers (shorts) are continuously matched.

CME Bitcoin futures see bullish momentum, but Bitcoin options market cautious

In the week of October 31, the number of active large investors surged to a record 122 people, indicating the growing interest of institutions in Bitcoin. Notably, the CME Bitcoin futures premium reached its highest level in more than two years.

In neutral markets, annualized premiums are typically in the 5% to 10% range. However, the latest 15% premium on CME Bitcoin futures is eye-catching, showing strong demand from long positions. This also raises concerns that some may rely on the approval of spot Bitcoin exchange-traded futures (ETFs).

Contrary to the bullish sentiment in CME futures, evidence from the Bitcoin options market points to growing demand for protective puts. For example, the ratio of put to call open interest on the Deribit exchange reached its highest level in six months.

Deribit Bitcoin Options Put Call Ratio. Source: Laevitas.ch

The current level of 1.0 indicates a flat open interest between bullish (buy) and bearish (sell) options. However, this indicator requires further analysis, as investors may sell call options to gain active exposure to Bitcoin above a specific price.

Regardless of demand in derivatives markets, Bitcoin’s price ultimately depends on spot trading flows. For example, the rejection price on November 2nd was $36,000, resulting in a 5% retracement that brought the price down to $34,130. Interestingly, during this period, the Bitfinex exchange saw net BTC inflows of $300 million per day.

As analyst James Straten highlighted, whale deposits coincide with Bitcoin’s waning momentum, suggesting a potential link between these movements. However, the downturn did not break the $34,000 support, indicating the presence of real buyers at this level.

Bitcoin’s latest correction came as futures for the Russell 2000 index of mid-cap U.S. companies rose 2.5% and hit a two-week high. This suggests that Bitcoin’s movements have nothing to do with the Federal Reserve’s decision to keep interest rates at 5.25%.

Additionally, gold prices held steady around $1,985 between November 1 and 3, showing that the world’s largest store of value was not affected by monetary policy announcements. The question remains: How much selling pressure are sellers of $36,000 Bitcoin still under?

Declining Bitcoin Availability on Exchanges Can Be Deceptive

As Bitfinex’s daily net inflows of $300 million demonstrate, simply assessing an exchange’s demand deposits does not provide a clear picture of short-term sales. The lower number of tokens deposited may reflect lower investor confidence in the exchange.

In addition to the U.S. SEC’s legal challenges to Coinbase and Binance exchanges for unlicensed brokerage operations, the FTX-Alameda Research incident has also triggered more concerns among investors. Recently, U.S. Senator Cynthia Lummis called on the Department of Justice to take “swift action” against Binance and Tether for their involvement in funding terrorist organizations.

related: SEC seeks summary judgment in Do Kwon and Terraform Labs cases

Finally, the cryptocurrency market has been affected by increasing returns from the traditional fiat fixed income business, while the once lucrative cryptocurrency yields disappeared after the Luna-TerraUSD collapse in May 2022. The movement had a lasting impact on the lending industry, leading to the collapse of multiple intermediaries including BlockFi, Voyager, and Celsius.

According to CME futures data, it is undeniable that institutional demand for Bitcoin derivatives continues to grow. However, this may not be directly related to lower spot supply, making it difficult to predict supply between $36,000 and $40,000 – a level that has not been tested since April 2022.