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Analysts' Insights

Analysts' Insights

Chart of the Week and Matrix Round-Up

Chart of the Week: TradFi traders are becoming more active in Bitcoin investment products. The Bitcoin Futures-based ProShares Bitcoin ETF, BITO, experienced a +420% increase in its weekly change in trading volume. While not the ideal product for trading Bitcoins due to the monthly roll cost and relatively high administration fees, the increase in volume signals that TradFi is gearing up for Bitcoin adoption.

Exhibit 1: Bitcoin Futures-based ETFs are seeing elevated interest from TradFi traders — example ProShares


Crypto Snapshot: The crypto market cap stands at $1.28 trn, +12.3% larger than the previous week, with an average weekly volume of $49.9bn, 20% higher than the average. However, volumes were muted over the weekend, indicating that retail traders are still not in FOMO mode. Despite the lack of volume, Bitcoin is trying to squeeze higher and could target $40,000 as the next significant resistance level.

Sentiment: Bitcoin broke above $31,000 resistance (now support) as derivatives traders were short gamma (short call options). The sentiment is now exuberant based on our MP Bitcoin Greed & Fear Index at 97%, and Ethereum's at 95%. The RSI for Bitcoin is 83% (overbought), while Ethereum’s RSI is at 72%. However, our analysis also indicates that an overbought RSI tends to project higher prices, as the increase in prices attracts more traders. The key signal to watch for is if we see a divergence between a declining RSI and higher Bitcoin prices, as the former could then serve as a leading indicator for the latter.

Volatility: Realised Volatility has doubled from 22% to 45% as market makers were short calls above $31,000, and this expects implied volatility levels to remian higher in the mid-40s for only a brief period. Expectations are rising that the SEC will approve a Bitcoin spot ETF as the next round of deadlines triggers a response by January 10, 2024. Due to the Christmas holidays, some market participants anticipate the ETF approval before the holidays.

Fundamentals: Top 10 blockchains generated $99.4m in fees last week. Ethereum doubled compared to the previous weeks, but we have to see if this is sustainable. Weekly fees: Ethereum: $32.4m, Tron: $23.2m, Lido Finance: $12m, Uniswap: $11m. Top 4 Total Value Locked (TVL): Lido ($16bn): 8%, Maker ($8.2bn): 2.9%, JustLend ($5.7bn): 18.2%, AAVE ($5.5bn): 8.7%, Uniswap ($3.4bn): 5.7% (WoW).

Stablecoins: Tether (USDT) market cap is $84.5bn, which is +0.5% higher than a week ago, while volume was $36.5bn, 10% higher than average. New USDT mints are bullish overall, but minting has slowed down in the last few days. Equally important is the decline in volume, which signals a lack of trading activity. Combined with the above-mentioned fundamentals, we expect Ethereum and other altcoins to have only temporarily benefited from the short option gamma that caused the squeeze higher in Bitcoin from $31,000 to $34,000.

Perpetual Futures: The Bitcoin perpetual funding rate has been elevated, indicating that many traders are leveraged long as this point.

Exhibit 2: Bitcoin perp funding rate is currently elevated, many traders panic bought in the last few days

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