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Daily: CME Bitcoin Futures Crash, Hong Kong’s New Crypto Regulations
November 06  |  3 min read

Daily: Ready, Steady, Mine!

BeQuant Analytics, a daily cryptocurrency market analysis contributor

According to the latest edition of China’s Industrial Structure Adjustment Guidance Catalog, which will take effect from the start of 2020, cryptocurrency mining will not face a state crackdown in China. A previous version of the document earlier this year included Bitcoin mining as one of the government’s targets. This official catalog will take effect on Jan 1, 2020. The previous Catalog draft was released on April 8th and the Government asked for public advice on their website on May 15th, 2019.

Looking at the market price action, yesterday’s Guy Fawkes day was marked with yet another flash crash, this time on the CME itself. The November contract crashed from $9,300 to the $8,400 region before quickly recovering. As a result, the Nov-Dec’19 calendar spread blew out above 110 before gradually moving to pre-crash levels of 80. Such events are not uncommon in crypto given the fragmented nature of the marketplace but it is the first for the CME. Not long ago, another flash crash started off with issues on the Coinbase Pro platform before spreading to Deribit exchange. In terms of the timeline, at 19:55 UTC on Oct. 31, BTC’s spot price dipped from $9,260 to $9,055 in quick succession on Coinbase’s Pro platform and not long after, Deribit, a futures and options exchange for Bitcoin and Ethereum, saw BTC futures prices drop from $9,150 to $7,720 before bouncing back above $9,000 within minutes. The move sent shockwaves throughout the derivatives market, with liquidations shooting to the moon on Bitmex as a result. The fireworks were also flying for Stellar (XLM), which traded up 20% after the Stellar Development Foundation (SDF) announced that it had burned over 55 billion XLM tokens. The positive sentiment remains in tact, albeit to a lesser extent and last we checked, XLM is trading close to its highest level since mid-Sep.

Ethereum has outperformed Bitcoin in the most recent session and even though the media may be focused on the block reward halving due to take place next year, the DeFi market in on yet another explosive growth path and the total amount locked in is about to top the record highs which were inked in late June. Tether related transactions on the Ethereum blockchain are the largest contributor to gas usage and the daily transfer amount remains on an upward trajectory. Eventually, there is a risk that the network will become congested but as it stands, the network utilization level is at 77%.

Ethereum Classic’s transaction fees are cheaper relative to Ethereum and there is much more spare capacity, in terms of the network. Given the upcoming hard fork and the focus on interoperability, what’s not to say that Tether will one day move to Ethereum Classic’s chain? At the same time, the hard fork presents yet another opportunity for relative value plays to capture spread tightening vs Ethereum and for contrarians to bet that some miners will switch away from ETH, given the planned transition to Proof of Stake.

In other news, Hong Kong’s financial regulator is due to publish a framework for cryptocurrency exchanges. Several of the world’s largest cryptocurrency exchanges operate in Hong Kong, but Ashley Alder, chief executive of Hong Kong's Securities and Futures Commission, said they had until now largely escaped regulation because most virtual assets fall outside the definition of a security. The new rules draw on the standards Hong Kong’s Securities and Futures Commission (SFC) expects of its conventional securities brokers.

Thank you for reading,

The BeQuant’s Analytics team