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Plus: Record GBTC Discount & Accumulation to Reach 1 BTC
Based on IntoTheBlock’s weekly newsletter. If you enjoy it, and would like to receive it every Friday make sure to sign up here!
Happy Friday and happy Thanksgiving to those celebrating.
This week we dive into the after-shocks from FTX’s collapse, leading to record low GBTC discounts. We then cover derivatives markets’ perhaps overly bearish positioning and the contrast with on-chain activity for Bitcoin.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether.
- Bitcoin fees reached their highest since July, with the number of daily active addresses climbing to the second highest level in 2022
- Ethereum fees, on the other hand, dropped to a two month low as market conditions calmed down
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges. Crypto going into exchanges may signal selling pressure, while withdrawals potentially point to accumulation under regular circumstances
- $2.1B worth of BTC flowed into exchanges over the past seven days, with Binance recording its highest daily inflows ever on Friday (123k BTC)
- Half a billion worth of ETH left CEXs this week, down from $1.5B in the previous week
Derivatives Signal Potential Mean Reversion
Fear continues to linger throughout crypto. Rumors of insolvencies and distrust of institutions abound in the aftermath of the FTX collapse.
Early this week, rumors of Digital Currency Group (DCG)’s financial troubles weighed down on the price of its subsidiary’s Grayscale BTC product.
Via IntoTheBlock’s Capital Markets Insights
$8k Bitcoin — GBTC’s discount led to an implied value of $8,500 for Bitcoin
- GBTC reached a record discount of over 45% relative to Bitcoin
- The discount has since narrowed to 42% following a letter from DCG’s founder CEO transmitting confidence to shareholders
- This partially eased off concerns regarding DCG’s Genesis, the largest crypto lending firm with $131B in loans originated for 1,000+ clients in 2021 per the Financial Times
Via IntoTheBlock’s futures metrics
Backwardation — December futures contracts are being priced lower than current Bitcoin spot price
- This condition (known as backwardation) is relatively atypical for Bitcoin and is indicative of the large amount of selling activity taking place in the last couple of weeks
- Futures’ backwardation also creates an arbitrage opportunity by buying the contract, selling spot and profiting from the difference as they converge by the time of expiration
Times where futures contracts are in backwardation tend to align with market bottoms, as happened in March 2020 and May 2021. A similar trend can be observed with highly negative funding rates.
Via IntoTheBlock’s BTC perpetual swaps metrics
Mean reversion? Funding rate above 0.05% or below -0.05% have been indicative of traders being crowded in one direction
- For the uninitiated, when perpetual swaps’ price are above spot price, the funding rate is positive and is charged to long holders (every eight hours typically)
- A funding rate of 0.05% translates to an annualized cost of 54% of the position’s value
- Following FTX’s collapse, funding rates on Binance dropped to -0.14%, the lowest in the exchange’s history, suggesting an abundance of short positions
Meanwhile, addresses holding 1–10 BTC have grown rapidly since the debacle.
Via IntoTheBlock’s Bitcoin ownership metrics
Buying fear? The number of addresses holding 1–10 BTC increased sharply
- A record amount of nearly 800k addresses currently hold this amount
- We previously saw an acceleration in these addresses in June, though to a lesser extent
- This suggests Bitcoin holders are taking advantage of the uncertainty in the market to accumulate and reach at least 1 BTC
Overall, the market remains on edge following FTX’s demise and its contagion effects. This evidently led to very bearish behavior in derivatives markets, but in spite of this there are signs on-chain of many Bitcoin holders seeing this as an opportunity.
Derivatives Signal Potential Mean Reversion was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.