The macro theme remains very much the same, the uncertainty surrounding global economic growth is a hot topic among the world’s leading central bankers and yet the supposed flows that benefited Bitcoin are no longer present. Press reports continue to point out that China’s central bank (PBOC) could cut its benchmark policy rate for the first time in four years if the US Federal Reserve (Fed) delivers a widely expected cut in late July. The central bank has already been quietly guiding short-term borrowing rates lower for months. However, after rallying like there is no tomorrow, Bitcoin has entered into a phase that has been particularly frustrating for directional and momentum traders; its price swings have been unexpected and stretches of volatility have tended to disappear without much notice.
Still, the futures curve is in deep contango and cryptocurrency miners that have yet to take advantage of this dynamic should do so soon, as it is anybody’s guess when the structure that is currently in place will disappear, as we saw in Dec’17. As a reminder, back then the contango reached sky highs of $2k premium to spot, but it has now been sometime since the futures market was introduced and similar overstretched levels may not materialize. It may be premature to say, but strong hands are hedged and weak speculative hands are long. The CME Commitment Report (COT) shows that as of 25/06/2019, the leverage funds category has increased its short positions to a record high of 3,246 vs longs at 3,093. Another reportable category is also overwhelmingly bearish, with shorts at 1,967 vs longs at 490. At the same time, the non-reportable category continues to counter the trend and is net bullish.
Elsewhere, the Singaporean government’s taxation agency is proposing to remove the goods and services tax (GST) from cryptocurrency transactions that function or are aimed to function as a medium of exchange. The Inland Revenue Authority of Singapore (IRAS) published last Friday an e-Tax draft guide for treatment on what it calls “Digital Payment Tokens,” seeking to exempt any entity dealing with such digital assets from GST liabilities.
In other news, European Central Bank (ECB) executive board member Benoit Coeure said that financial regulators must act fast in order to prepare for Facebook’s Libra stablecoin. Per Bloomberg, Coeure argued that allowing for the development of new financial services and asset classes in a regulatory void is irresponsible.
It is now 28 days until Litecoin’s block reward halving event, where the reward will decrease from 25 to 12.5 coins. Given the run-up in prices and the inability of the broader market to sustain further upside, profit-taking should not come as a surprise. The question is: where will the outflow of capital go? XRP offers an attractive contrarian trade opportunity given its underperformance over the course of 2019, as does Bitcoin SV (BSV) given its ambitious development roadmap and increasing block size.
Finally, it is worth remembering the unresolved state of affairs between Bitfinex and Tether vs NYAG. As a reminder, the NYAG has until July 8 to file a response after Bitfinex filed a motion to dismiss the proceeding and the judge scheduled a hearing on the motion to dismiss for July 29.
Thank you for reading,
The BeQuant’s Analytics team