04 December Bitfinex Alpha | Bitcoin's rally and the underlying economy also look strong
In Bitfinex Alpha
At Bitfinex this week alpha, we explore how Bitcoin reached a new year-to-date high of over $42,000 on December 4th and its strongest monthly close since March 2022. We attribute this rally to the culmination of various factors, including a notable shift in futures dynamics. The market compared to the spot market.
In our analysis of cumulative volume delta, we saw an increase in leverage – usually a signal of caution – but at the same time a decrease in open interest, especially on the short side. Moreover, the futures market has shown resilience to downward volatility, compared to quieter activity in the spot market. Heavy buying in the futures market also wiped out short trades in the BTC and ETH markets, further contributing to the bullish pressure.
While these phenomena push the price higher, we show that downside risks should not be ignored. BTC is now trading above the achieved price ranges of one, two, three, five and seven. While these levels now effectively provide support for Bitcoin, we see the three-year price breakout, in particular, as a risk – albeit a remote one – of market capitulation.
Positive Bitcoin price dynamics are also occurring on the back of strong economic data, supported by a recovery in US consumer confidence. However, there are some signs of stress in the banking sector, which has seen a decline in profits due to higher loan provisions and unrealized investment losses. However, the US economy remains strong, with 5.2% growth recorded in the third quarter, driven by increased business investment and state and local government spending. We now believe there is a possibility of a rate cut by the end of May 2024. This view is reinforced by inflation falling to its lowest levels now in more than a year, resilient consumer spending and rising incomes.
In cryptocurrency news last week, the Philippine Securities and Exchange Commission (SEC) said it was taking action against Binance for non-compliance with registration and licensing requirements. It said it would give Filipino users three months to withdraw their investments and said it would also ask Google and Meta to block Binance ads in the Philippines. In another important development, Coinbase has notified some of its users about a subpoena from the Commodity Futures Trading Commission (CFTC) that could mean it has to share account information.
Reports indicate that the subpoena may target users with accounts on both Coinbase and Bybit as part of the CFTC's broader action against cryptocurrency exchanges for regulatory non-compliance.
Grayscale, a leading crypto asset manager, is preparing to compete in the Bitcoin ETF market with a key hire from Invesco with deep experience in ETF product development who will lead distribution and partnerships at Grayscale. Finally, we report on how CME BTC and Ether futures are showing a widening spread between next-month and first-month futures, with futures prices currently outpacing spot prices. This is being interpreted as a sign of increased interest by institutional investors in taking bullish leveraged positions, especially ahead of the spot Bitcoin ETF announcement.
Happy trading!
