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Daily: FOMO Effect Post China’s Comments, Spot Market, CME Commitment of Traders, 3iQ
October 31  |  4 min read

Daily Overview: Smart Money

BeQuant Analytics, a daily cryptocurrency market analysis contributor

The already fragile sentiment has headed south and the FOMO effect post China’s comments on blockchain has all but disappeared. World-renowned Yale professor Robert J. Shiller once wrote - “Irrational exuberance is the psychological basis of a speculative bubble. I define a speculative bubble as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases...” This narrative is particularly relevant in the world of digital asset trading and it appears that China FOMO is yet another example of this. Other recent events illustrating this include the flash crash of the Bitcoin network hashrate from 98 to 67 exahashes per second that occurred in September and the somewhat anticlimactic launch of Bakkt’s physically settled Bitcoin futures trading. Nonetheless, this does not mean that the asset class is headed for failure, instead these aforementioned market inefficiencies continue to present an opportunity for market participants to generate alpha, be that through relative value, arbitrage and many other strategies. Looking at the market, despite the contango widening, the spot market looks soft and there is a risk of another break to the downside.

What’s more concerning is that the latest CME Commitment of Traders (COT) shows a further decrease in long positions and, in the leveraged funds category in particular, it is at its lowest level in the last 12 months. At the same time, the non-reportable category saw yet another increase in short positions and these are at their highest level over the last 12 months.

In terms of news flow, Genesis Capital saw another jump in cash and stablecoin lending this quarter. The lending arm of the over-the-counter trading subsidiary of Digital Currency Group (DCG) published its latest “Digital Asset Lending Snapshot” on Wednesday, noting that the surge in cash lending was significant enough to shift the firm’s $450 million lending book. For the first time this year, BTC-denominated loans now represent less than 60% of Genesis’ portfolio. The cash lending program grew from 23.5% of the firm’s active loan portfolio in the second quarter to 31.2% in the third quarter.

CME Group has just published the specifications for its upcoming Bitcoin options contracts. The Chicago exchange revealed Wednesday that each contract would be based on one of CME’s Bitcoin futures contracts (which in turn consists of five bitcoins); the contracts would be quoted in U.S. dollars per bitcoin with a tick size of $25 (or $5 for reduced tick sizes); and would trade from 5:00 P.M. Central Time Sunday to 4:00 P.M. Central Time Friday.

Elsewhere, Canadian investment fund manager 3iQ received an initial approval on its long road to launching a closed-end Bitcoin fund on the Ontario Stock Exchange later this quarter. The firm said on Wednesday that it received a favourable ruling before a panel of the Ontario Securities Commission (OSC) for the Bitcoin Fund, noting the commission moved to require the OSC Director to issue a receipt for a final prospectus.

Thank you for reading,

The BeQuant’s Analytics team