Opening bell │ #9 │ 2nd April

Report highlights:

1. March saw a 23% decline in Bitcoin ETF net flows from February, as Bitcoin’s prices soared, purchases plummeted by 88%. Yet, ETF assets remain near record highs.
2. Bitcoin’s bull run contrasts with declining quarterly returns since 2017.
3. Last week’s high funding rates forced traders to close costly positions, reflecting market volatility and the changing costs of long investments.
4. Although long forward dated futures are paying a handsome sum north of 15%, short term is proving more lucrative.

Bitcoin quarterly returns on closing price? |? %

Has Bitcoin finally been domesticated by institutional investors?

In the feverish 2017 crypto bull run Leo Melamed, then Chairman Emeritus of the CME, declared that the introduction of Bitcoin futures would “tame” the cryptocurrency into a standard trading instrument. This prediction marked a notable point in history as institutions began to engage with crypto. Despite achieving record highs across three separate cycles, there has been a noticeable downtrend in quarterly returns. However, with recent quarters showing impressive gains of over 57% and 69%, significantly outpacing the average 30% return since early 2017, the question arises: has Bitcoin been tamed?

Bitcoin historical drawdown and upside two weeks prior and after halving? |? %

Bitcoin volatility and upside potential as block reward halving nears.

With Bitcoin’s fourth block reward halving just around the corner, anticipation is building. Analysis of market behaviour around previous halvings, considering price movements two weeks before and after the event, suggests significant volatility. Back testing historical movement in these periods could see Bitcoin’s value potentially fluctuating between $65k and $94k in the ensuing four weeks. Despite the large predictive range and absence of a discernible pattern, this event remains a critical watch.

Bitcoin ETF AUM & flows?

Outlier flows for Invesco Bitcoin ETF may offer market participants direction clues.

March witnessed a 23% decrease in net flows into US-based Bitcoin ETFs compared to February, dropping from over $6 billion to $4.6 billion, notably during a week shortened by Easter.

This reduction led to an 88% decrease in Bitcoin purchases by these funds, from 116k Bitcoins in February to 61k in March, despite the price surge to a new high of $73,800.

The impressive price increase nearly doubled the value, somewhat concealing the lower acquisition volume, with the combined fund value just under the peak at $58 billion.

Twelve weeks post-launch, ETFs have acquired 212,000 Bitcoins on top of Grayscale’s initial contributions.

Only 69,300 Bitcoins being mined in the same period.

Interestingly, market behaviors vary among ETFs.

Blackrock, owning 30% of the market share, has consistently purchased Bitcoins, indicating a clear investment strategy with no days of net outflows.

Conversely, Invesco’s BTCO reflects a more price-sensitive investing behavior, experiencing net outflows of $21.5 million in March—about 10% of its total value.

However, as Bitcoin approached $63k, the last two weeks saw a resurgence of interest, with net inflows of $62 million in six trading days, suggesting investors might see this level as a pricing floor.

Although funds have seen swings in how much flows are coming in, it is only BTCO that has seen several days of net selling. These investors are taking profits and probably a good indicator to keep an eye on to see how traders rather than long term holders are seeing the market.

Net weekly ETF inflows?? |?? $mn?

ETF Bitcoins held & USD value

Blackrock IBIT? |? Flows and Bitcoins under management

Invesco BTCO? |? Flows and Bitcoins under management

Fundamentals?

Daily spot exchange withdrawals at highest level, likely to accelerate.

The debut of ETFs this year has led to unprecedented outflows from spot exchanges, averaging a daily decrease of -0.15% from their reserves.

This year, nearly 99k Bitcoins, or about 13% of the total exchange supply, have been withdrawn.

Although ETFs are a likely factor, these funds have acquired over 212k Bitcoins, indicating they may have sourced some of these from outside the exchanges.

Even if the current rate of decline persists, it would result in less than 100 Bitcoins withdrawn daily from spot markets, whereas ETFs have been adding over 2500 BTC per day since they began trading.

And despite Bitcoin’s price exceeding its 2021 peak, the value of spot reserves in US dollars has plunged by 52%.

Spot exchanges now hold $40-45 billion in Bitcoin, while ETFs saw net flows of around $12 billion in the first quarter of 2024. And in around two weeks time, new market supply will be less than 500 Bitcoins per day. Supply squeeze in the making?

Average daily net balance change in Bitcoin spot reserves |? %

Bitcoin spot reserves upper and lower range? | USD bn

Real world assets on the blockchain? |? $mn

Blackrock fund helps breaks $1bn threshold in tokenized government treasuries.

Despite being one of the priciest options available, with a management fee of 0.5%, Blackrock’s new USD Institutional Digital Liquidity Fund (BUIDL) has attracted $280 million in investments, trailing only behind Franklin Templeton’s fund, which has amassed $360 million on the Stellar network.

The market for tokenized government treasuries and their yield-bearing extensions has surpassed the $1 billion threshold across various blockchains, with Blackrock selecting Ethereum as its preferred network.

Bitcoin funding rates?

Bitcoin funding rate resets after long traders pay through the nose.

Last week, the Bitcoin funding rate, a fee paid by long traders to short traders, surged as Bitcoin bounced back from $63,000, surpassing the $70,000 milestone once again.

Since October, the daily average funding rate has remained positive, reflecting a bullish sentiment.

However, as the market rallied last week, the funding rate escalated from 0.008% every eight hours to a peak of 0.058%.

This spike implies an annualized cost of 63% for long traders, suggesting they would need Bitcoin to reach a breakeven point of $114,000.

The high cost of maintaining long positions led to traders liquidating their positions, introducing increased volatility into the market.

Nevertheless, the funding rates have since moderated to a more sustainable annualized rate of 14-15%, with rolling three-month returns still paying out north of 25%.

Bitcoin average funding rates? |? %

Bitcoin futures annualized rolling basis? |? %

Average Bitcoin forward-dated futures premiums in march? | %

Shorter term dated futures proving more lucrative and less expensive on Deribit.

24-Hour volume to open interest for all derivatives across crypto exchanges as of 2nd April.

Social media discourse

Up only on national debt, interest payments, market liquidity, personal debt, inflation.

US interest payment with no rate cut? |? $bn?

US treasury general account |? $bn?

US personal interest payments? |? $bn?

Economic calendar

Key events this week : All eyes on US employment prints as Powell set to speak.

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