Opening bell │ #12 │ 7th May

Report highlights:

1. Increase in the use of crypto as margin on derivative exchanges highlights traders' willingness to take on increased risk to make gains on the underlying assets.
2. ETF: If the bull market is tied to the flows narrative, then the flows are bound to give some upper and lower range that Bitcoin should be trading within.
3. Reverse RSI would imply a $220k Bitcoin as of today.
4. BTX/DXY/SP500 are exhibiting high positive correlations simultaneously, a rare occurrence, before new all-time highs are set.

Bitcoin percent futures open interest crypto-margined??

Futures open interest use of crypto as collateral increases 50% since this year’s low.

Most exchanges used to only have crypto as the collateral. Since cash-margined futures products came of age, traders have preferred the stable collateral that helps manage the risk when downturns happen. However, since sometime in mid-February, bullish traders have expected gains from both ends—their collateral and open positions—and the use of crypto-margin futures has increased from 19% to 30% on Binance, and from 31% to 44% on OKX.

On-chain trading?

On-chain derivative trading breaks $1 Trillion for the year.

A testament to the development of Ethereum and Layer-2 protocols, trading volumes for derivative products have already surpassed $1 trillion this year. Comparatively, last year the first four months only saw $200 billion in total trading volume, meaning a 500% increase for the same period. In 2023, a total of $665 billion of trading volume on-chain was registered. With an average of $240 billion monthly volume this year, 2024 will likely trade multiples higher than previous years as fees and speed of execution continue to improve and evolve.

Bitcoin ETF AUM & flows

Bitcoin establishing price support range relative to cumulative ETF flows.

Bitcoin ETFs have ended their 17th week of trading on a down note, marking four weeks of consecutive outflows.

Over the past month, these ETFs have experienced over $1 billion in net outflows. Despite this significant amount, these outflows represent only a small fraction of this year's total flows, which exceed $11 billion in just under six months of trading.

The influence of ETF traders on Bitcoin's price has been profound, often providing key signals to derivative traders. Notably, the CME now reports 14% more open interest in Bitcoin than Binance, indicating a shift that might have become a new baseline assumption for market watchers.

Bitcoin recently faced significant volatility, briefly falling to the mid $50k range before recovering sharply. This was influenced by global market reactions to the Federal Reserve's latest dovish signals.

Despite these market fluctuations, the fundamental dynamics of Bitcoin remain rooted in supply and demand. Notably, while this past month has seen several weeks of net outflows, there have also been days of positive inflows (see chart 2).

Since reaching its all-time high in mid-March, the daily flows have averaged a negative 0.23% of the cumulative total. However, significant inflows last Friday and this Monday reduced the recent outflow impact from -$1.4 billion to just -$800 million.

Does this suggest that we an $800mn injection might push Bitcoin back above the $70k mark, where it was trading before flows began to pour out?

The observed stability within a certain range of cumulative flows suggests that specific thresholds on the lower cumulative total levels might serve as support levels for Bitcoin's price, potentially even indicating arbitrage opportunities (see chart 3).

With cumulative flows now standing at $11.7Bn, Bitcoin's price is below the average flow levels seen when it previously traded between $70k and nearly $74k. Or perhaps at current levels, there is price support to maintain a $60k mark on the upper net flow level assumption also. All eyes on flows.

Net US-based Bitcoin ETF weekly inflows?? |?? $mn

?% Of inflows or outflows relative to cumulative holdings? |?? %

Bitcoin price range (high) vs total net flows range? |?? $mn

US economics?

Little consensus as to whether US stocks pump or dump.

There's been considerable debate online about whether recent statements from Federal Reserve Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen are indicative of bullish or bearish market trends.

Investors are keenly analyzing the potential impact on market liquidity, with differing views on the implications of the Federal Reserve's slower pace in tapering its balance sheet. The shift from tapering at $95 billion to $60 billion monthly is effectively akin to a $35 billion injection via quantitative easing, as put by the infamous former Bitmex CEO and co-founder Arthur Hayes (Source ).

This gradual reduction is expected to slowly push markets upward, particularly if interest rate cuts materialize within the year.

Conversely, some experts argue from a different perspective, focusing on total market liquidity. They note that U.S. market movements are closely tied to the Fed Balance Sheet, Treasury General Account, and Reverse Repo operations.

Utilizing the Reverse Repo to finance short-term T-Bills could tighten markets significantly, potentially leading to negative outcomes that have not yet been fully realized on stock markets (See chart 1)- (Source ).

Moreover, it's noteworthy that M2, a measure of money supply, has been gradually increasing this year, adding another layer of complexity to predictions about future market behavior.

It's crucial to consider the role of international economic indicators and their potential to influence U.S. financial markets. Events like changes in foreign exchange rates, as seen with the Japanese Yen, international trade agreements, or shifts in overseas market regulations could either mitigate or exacerbate the impacts of domestic policies. Understanding these dynamics will provide a more comprehensive outlook on how U.S. markets might evolve in the coming months against competing monetary policy directions.

1: Total liquidity = fed balance sheet – (treasury general account + reverse repo)

2: Change in M2 supply ($bn)

3: % change in M2 versus a year ago

Forward-Dated Futures Premium.

Top Level Statistics:

1. December and March 2025 Expiry contracts on Deribit are trading at a little under 10% annualized premium, down from more than double that at Bitcoin’s price peak.
2. The is comparative to levels seen when ETFs began trading. Is a reversal of this downtrend near?

Bitcoin premium? |? %??

Bitcoin technical indicators??

Reverse Engineered Relative Strength Indicator (RSI).

In 1993, a Greek doctoral student, Giorgios Siligardos worked on the developing a reverse relative strength indicator (RSI), i.e, what would the price level have to be to hit a certain RSI number. Bitcoin’s peaks in 2017 and 2021 saw RSI hit above 91 where traditional Technical Analysis would call anything above 70 as overbought. On a monthly time frame, Bitcoin’s RSI hit 77 this year, and currently at 68. Should history repeat itself, as of today a 90+ RSI would mean a $220,000 Bitcoin price.

Bitcoin

Correlations.

Less than a handful of times has Bitcoin’s correlation with both the US Dollar Index (DXY) and the S&P 500 been at elevated positive levels at the same time:

1. Early 2017 when Bitcoin was trading at under $1000.
2. April 2021 when Bitcoin hit its first price peak of the year before going to on to make a new high later that year.
3. As of today, Will markets see a short reversal like 2021 or onwards to new highs like 2017?

Volumes.

Top Level Statistics:

1. $8.1 Trillion in trading volume combined for BTC & ETH in 2024.
2. 68% vs 32% average split between volumes for the top two cryptocurrencies.
3. April volumes decreased by 22% versus March 2024, but still well above levels seen in January and February.

Bitcoin and Ethereum perpetual trading volume? |? $bn?

Options.

Top Level Statistics:

1. Average monthly volume between 2021-23 was $30Bn, whereas 2024 is a whopping $68Bn.
2. YTD: $274Bn vs $399Bn for all of 2023, a record year.
3. Unlike derivative futures where CME reigns king, Deribit is over 10x open-interest on options. OKX, is halfway towards CME open-interest levels also.

Bitcoin and Ethereum options trading volume? |? $bn?

Perp Open Interest.

Top Level Statistics:

1. $21.7Bn in open interest for both Bitcoin and Ethereum combined.
2. This year’s open interest peak stood at an impressive $27 Billion.
3. 33% of open interest is currently for Ethereum. This reached as high as 47% back in 2021.
4. When ETFs began trading, the expectation of an ETH ETF took open-interest as high as 40% this year.

Bitcoin and Ethereum open interest? |? $bn

?Economic calendar

All eyes on China, Japan and others after strong USD, high US Fed rates causes problems.

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