Bitcoin is back and once again topping the charts when the fund ETF Bitcoin First traded on the New York Stock Exchange. ProShares . ETF, Is called BITO - track follow Bitcoin Futures on the world's largest derivatives exchange Chicago Mercantile Exchange - already Earning more than 1 billion USD in trading volume in the first two trading days and almost exceeded the prescribed buying limit for a portfolio. For the first time, CME passed Binance became the largest crypto derivatives exchange by open interest.
The special interest of organizations has pushed Bitcoin to a new all-time high above $66,000 and Ethereum over $4,000. More news like floor FTX raised 420 million in funding, Facebook launches digital wallet Novice with stablecoins of Paxos and the price crash on the floor Binance US.
Bitcoin dominates the market in October. Bag ETH/BTC used as an indicator of Bitcoin dominance over altcoin and has historically been a gauge of investor sentiment. When this pair falls, it means investors are moving money in Ethereum, altcoin for storage and vice versa. Since the beginning of September, the pair has been in a slight downtrend. This is a sign that Bitcoin is leading the latest uptrend of the crypto market.
From March to May, the pair rises when the market Ethereum and altcoins rallied and Bitcoin failed to break the old highs. Throughout the summer, the pair's rate remained flat despite altcoins rallying with an impressive V-shaped pattern. After setting new highs last week, Bitcoin is now showing signs of weariness as the rate rises slightly.
FTX created a big buzz when the 2nd round of funding was successful with a huge amount of $ 420 million in funding, raising the asset's valuation to $ 25 billion. Most of the exchange's revenue comes from trading fees. So, trading volume is a good metric to measure the growth of an exchange. FTX formerly mainly known for its derivatives products but in the past year this exchange has dominated the spot market. Currently, the average daily trading volume of the exchange knife from 1-2 billion USD. This growth successfully makes FTX a formidable competitor to exchanges like Binance and Coinbase.
October spot trading volume is huge. The month isn't over yet, but October's Bitcoin spot volume is poised to close at an all-time high. Volume this month is higher than September because BTC There was a strong price increase. Volume still can't compare to the high in May but this high is largely due to BTC collapsed on the 19th of this month. Higher-than-average trading volume coupled with rising prices is a strong indicator of growth like it was in January. Bitcoin breaks ATH with record high institutional investment.
Liquidity of order book
Algorithm error caused huge loss for Binance US and market arbitrage. Although the infrastructure of the cryptocurrency market has improved a lot over the years, technical glitches still occur from time to time. Last week, a flash crash occurred on the Binance US exchange causing the Bitcoin price to drop from $66,000 to $8,000 in a matter of seconds. The chart above shows Bitcoin's volume and second-by-second price on Binance US on Oct. 21. We can see exactly when a large amount of sell orders were executed causing the price to drop. This is explained by a trading algorithm error of a large investment organization.
This crash causes market depth (which is a measure of supply and demand for liquid and tradable assets) to decline during and after it occurs. Below is a chart of the 1% bid and sell volume of the middle price (mid-price: the price between the best bid and the best ask). We can see that both bid and ask depths are down sharply with bids almost zero at the midpoint. 1%'s average bid volume is around 20 BTC, which means that the sell volume is huge (>100 BTC) and Binance US can't handle such a large sale in a matter of seconds.
Market depth recovered relatively quickly but still failed to reach pre-crash levels as market makers adjusted their positions and withdrew order books.
The liquidity crunch and high volatility on Binance US that has spread to other Bitcoin markets proves that a particular exchange's failure is always a big deal. The chart below shows the Bitcoin price has dropped on a few other exchanges, the bid-ask spread has spiked and has remained volatile ever since.
Spread has increased to over 5bps on Binance US and Bitstamp, exceeding 3bps on Kraken and 2bps on Gemini during the crash. Transaction costs are higher throughout the day and more volatile than average.
Bitcoin Derivatives Market
Is the market getting too hot? Funding rates (the ratio of the amount to be paid when the market price Futures and Spot Markets) of Bitcoin Futures spiked to a 6-month high last week when Bitcoin broke its ATH. Funding rates above Bybit, an exchange mainly for retail traders, experienced the strongest bull run in history. This is a sign that the market is overheating.
When investors anticipate the price of an asset to rise, they accumulate long-term perpetual futures positions at a price above the spot price. At this point, funding rates will turn positive and those holding long positions will have to pay those holding short positions. This causes a short sale and eventually the price of the perpetual futures contract equals the spot price. High funding rates often cause price reversals and Bitcoin ended the weekend in the red.
ETF of ProShares hit the $1 billion mark in AUM (Assets Under Management). On Thursday, ETF ProShares Bitcoin Becomes Fastest $1 Billion ETF in History. This is the first Bitcoin ETF to be traded in the United States, although several Bitcoin ETFs have been traded on the Toronto Stock Exchange in Canada. The chart above shows the net asset value of several Canadian ETFs against ProShares.
Note that Canadian ETFs hold real Bitcoin while ProShares' fund is through Short-Term Bitcoin Futures. In which, only the Purpose fund Bitcoin ETF and 3iQ Bitcoin ETF has a net asset value (NAV - Net Asset Value) greater than ProShares even though ProShares has not been launched for 1 week. As more U.S. ETFs are approved, there will likely be a dispersion of Bitcoin volume across several derivatives rather than just one.
Despite the popularity of the US ETF, there are still many experts who are concerned that an ETF based on futures contracts will incur high costs for long-term investors due to a phenomenon called "contango bleed". Contango occurs when the futures price of an asset is higher than the spot price. Unlike ETFs on Bitcoin spot. ETFs on Bitcoin futures need regular renewal or transfer of contracts. In contango, longer futures contracts are more expensive due to the additional cost (known as “contango bleed). Essentially, investors pay a premium when investing in Bitcoin but in return get a legitimate ETF with the least risk.
The performance chart of 3 oil contract ETFs from 2016 along with West Texas Intermediate (WTI) spot prices below will demonstrate this.
We can see that these futures ETFs perform worse than WTI spot despite the difference in operating structure and investment strategy. While spot oil prices have risen by 124% since 2016, one of the largest oil futures ETFs, the United States Oil Fund (USO), is down 35%. The United States 12M Oild Fund (USL), a security that represents positions in 12 different futures contracts (one for each upcoming month) outperformed, gaining 72% over the same period.
Bitcoin's correlation with commodities - which have performed so well during unexpected inflationary times - has mostly increased since the beginning of Q3. In Bitcoin's 30-day rotating correlation chart with gold, oil and In the above coin, we can see Bitcoin's correlation with industrial copper and oil has been increasing since September. Both oil and copper have been up for several weeks due to growing demand and record low inventories. In contrast, Bitcoin's correlation with gold has been negative throughout the year despite briefly turning positive in September. According to a recent analysis by JPMorgan Chase, seeing Bitcoin as a better hedge against inflation than gold seems to be the driving force behind Bitcoin's rally rather than the emergence of ETFs.