Bitcoin’s price saw a significant surge of 26.5% in October, accompanied by several indicators reaching a one-year high. These indicators include the BTC futures premium and the Grayscale GBTC discount. The data suggests a recovery period after the FTX-Alameda Research collapse and is influenced by the recent increase in interest rates by the U.S. Federal Reserve. Despite these positive indicators, Bitcoin’s price still remains around 50% lower than its all-time high of $69,900, which was reached in November 2021. In comparison, gold is trading only 4.3% below its peak level of $2,070 in March 2022. This difference highlights the fact that Bitcoin’s adoption as an alternative hedge is still in its early stages.
It’s important for investors to analyze the macroeconomic environment before determining whether the improvements in Bitcoin futures premium, open interest, and the GBTC fund premium signify a return to the norm or the initial signs of institutional investors’ interest.
The recent announcement by the U.S. Treasury to auction off $1.6 trillion of debt over the next six months has sparked hope among institutional investors. The key factor to watch is the size of the auction and the balance between shorter-term Treasury bills and longer-duration notes and bonds. Billionaire and Duquesne Capital founder Stanley Druckenmiller criticized Treasury Secretary Janet Yellen’s focus on shorter-term debt, considering it “the biggest blunder in the history of the Treasury.” This increase in debt rate has led Druckenmiller to praise Bitcoin as an alternative store of value.
The surge in Bitcoin futures open interest, reaching its highest level since May 2022 at $15.6 billion, is a result of institutional demand driven by inflationary risks in the economy. The CME has become the second-largest trading venue for Bitcoin derivatives, with $3.5 billion notional of BTC futures. Additionally, the Bitcoin futures premium, which measures the difference between 2-month contracts and the spot price, has reached its highest level in over a year. These fixed-month contracts typically trade at a slight premium to spot markets, indicating sellers’ demand for more money to delay settlement.
The demand for leveraged BTC long positions has also significantly increased, as the futures contract premium exceeded the neutral-to-bullish threshold of 5% for the first time in 12 months. Furthermore, Grayscale’s GBTC fund discount has narrowed the gap to the equivalent underlying BTC holdings. This suggests that investors anticipate a higher likelihood of a spot Bitcoin exchange-traded fund (ETF) approval in the U.S.
However, investors should exercise caution when relying on exchange-provided numbers, especially when dealing with unregulated derivatives contracts. The increase in the U.S. interest rate to 5.25% and the escalated exchange risks post-FTX make the 8.6% Bitcoin futures premium less bullish. In comparison, the CME Bitcoin annualized premium stands at 6.8%, while Comex gold futures trade at a 5.5% premium, and CME’s S&P 500 futures trade at 4.9% above spot prices.
Despite the positive data, it’s important to acknowledge the risks in cryptocurrency markets, as highlighted by U.S. Senator Cynthia Lummis’s call for the Justice Department to take “swift action” against Binance and Tether. The approval of a spot Bitcoin ETF could also lead to sell pressure from GBTC holders who have been limited by Grayscale’s administration and high fees.
In conclusion, while the recent data and performance of Bitcoin suggest a return to the mean, it is crucial for investors to consider the overall macroeconomic environment and the potential risks associated with cryptocurrency markets.