BTC is firmly back in the spotlight again and we’ve rallied to old range highs, although still shy of retaking the very key 12,500. We think that this rally is certainly more organically-driven than previous rallies but there are some nuances to take note of.
- The market’s resilience to negative healines (BitMEX’s legal charges and OKEx’s indefinite suspension of all withdrawals) is certainly a positive for BTC, signalling maturation into an asset that can withstand significant systemic shocks (considering these exchanges are both a Top 5 derivative exchange). However while positions on BitMEX continue to reduce (Chart 1), leverage on OKEx has ballooned 20% (US$200m) since Friday alone (Chart 2).
We suspect that with deposits sitting there with no end in sight, many have decided to go for broke and further leverage their long positions. This has pushed OKEx’s futures curve to the top of the pile (Chart 3 — green line), amidst an unusually flat contango for a bull market.
2. We are further along in the BTC paradigm shift towards a mainstream asset class, with four more publicly-listed corporates last week adding BTC as a means of diversifying their balance sheet (out of USD). We believe this news, along with more rhetoric on Central Bank Digital Currencies (CBDC) from the IMF conference this week, has put BTC back on investors’ radar as both an anti-USD, as well as an anti-CBDC (in terms of storing wealth outside the current and future monetary systems). Much more so for the CBDC world, where the reach of the central banks are far and wide, and the line between fiscal and monetary policy is absolutely blurred.
However we are still some ways from that, and in the meantime, the systemic risk for BTC out of the US is growing. The bulk of these new corporate whales are from the US (Chart 4), and the growth in CME OI has been a big driver of this move as well (Chart 5).
Therefore we look to the US elections as a medium-term risk still. With all the regulatory reminders we’ve already had this month, anything emanating from that department around election time would be major cause for concern.
3. Shorter-term BTC has adopted its anti-USD role to good effect — benefiting from all the positives on the macro front this week, especially with regard to US stimulus talks and positive China vaccine news pushing macro risk assets higher (Chart 6 — Blue line — BTC, Yellow line — Dollar Index inverted, Pink line — Gold).
The story has been all about BTC though, with Defi-led yields hovering at low single-digits, ETH has struggled with generating any positive momentum at all and remain stuck in its wedge formation (Chart 7) not looking like breaking out anytime soon.
For BTC, as long as we remain above 10,000–10,500 a bullish bias is intact. However 12,500 will prove a tough nut to crack as it also contains the underside of the previously broken trendline (Chart 8). This weekend we have the 2-day TD 9 & 13 on the same bar — and this could prove a stumbling block in the near-term to a parabolic breakout pre-election.
Our strategy remains to accumulate coin through selling longer-dated puts around the 10,000 level, as we believe point (2) above about significant corporate and institutional accumulation could cement the price floor for BTC going forward.