The market staged a healthy rebound following the route that took place the previous session, Bitcoin is trading in the mid-$8k region and Ethereum is flirting with the $170 level. As a reminder, just over 50% of CME Bitcoin futures open interest is set to expire this Friday and, given the inefficient and fragmented market structure, there are plenty of opportunities to capture value. The mispricing in futures is the most obvious play and it’s also not limited to just Bitcoin. The mispricing heading into CME Bitcoin expiry is set to affect other assets as well. The magnitude of the imbalance has been such this week that FTX Mar20 was trading $600 below BitMEX, which is more than a 7% spread. This spread has tightened up accordingly over the last few days.
Bitcoin is due to undergo block reward halving next year which is widely expected to push up its price, but before that, market focus will be on the upcoming Ethereum network upgrades dubbed Istanbul. These will be rolled out over the coming months and will include a number of Ethereum Improvement Proposals (EIPs), which will need to be deployed on testnets before a smooth mainnet hard fork. Istanbul is the 8th Ethereum network upgrade to hit the Ropsten and Goerli test networks next month. November and December will see rollouts on the Rinkeby and Kovan testnets before the mainnet launch in early 2020. The upgrade will include EIPs that address the following issues; aligning the costs of opcodes with their computational costs and improving denial-of-service attack resilience, making layer 2 solutions based on SNARKs and STARKs more cost-effective, enabling Ethereum and Zcash to interoperate (atomic swaps) and allowing contracts to introduce more creative functions.
In other news, Lloyds Bank is partnering with blockchain platform Komgo to streamline its commercial banking division. The Komgo platform relies on blockchain technology to optimize financing processes, fight fraud and increase trade efficiencies. The platform is backed by 15 bank and commodities investors, which include ING, ABM Amro, and oil giant Shell.
Elsewhere, a European Central Banker has claimed that Facebook’s Libra could potentially solve some of the problems in the international payments market, but it might create a number of others that will require creative thinking by the regulators. In comments to the German federal parliament Bundestag, Benoit Coeure, a member of the Executive Board of the European Central Bank (ECB), said “Libra has undoubtedly been a wakeup call for central banks and policymakers,” and they should respond to these challenges.
Thank you for reading,
The BeQuant’s Analytics team