The latest CME Commitment of Traders (COT) report shows long Bitcoin positions have increased across leveraged funds and other reportable and non-reportable categories. However, even though short positions continue to outnumber longs in the widely followed leveraged funds group, data for the other reportable category shows longs outstripping shorts for the second consecutive week (1st time since March 2019).
Also, longs in this category are at their highest since mid-July. It is also worth highlighting that volume on the Bakkt platform continues to increase and on Friday, a new daily record was set at 1,756 Bakkt Bitcoin Futures contracts. This is about $15.5 million and not only it is 50% above what the previous high for one trading session was, it also represents a 109% increase over the 834 contracts traded the day before with each contract being equivalent to one Bitcoin.
Despite this, the price action over the weekend was rather muted until yet another breakout, and this time it was positive. The move took place late Sunday and saw Bitcoin moving back above the $9,000 level, while Ethereum traded back above the $190 level. Still, even though the spot market is somewhat soft, the futures curve continues to show steepening. This, together with another growth spurt in DeFi, suggests that market participants are increasingly looking to leverage their positions, be that through exposure to Bitcoin or Ethereum, which are very highly correlated.
In terms of DeFi, over 2.4M ETH is locked in the credit system, while Maker holds just over 1.7% of all the outstanding ETH supply (close to 6-month high). As a result, Maker (MKR) continues to show strong gains and it is worth remembering that last week, the Maker Foundation Interim Risk Team placed an Executive Vote proposal into the voting system to lower the Dai Stability Fee to 5% and, more importantly, to raise the debt ceiling to 120 million. There may be a strong case to be bullish on Ethereum, but it is not the lack of users and adoption that is the main issue, but the already high utilization level of the entire chain which currently stands at 76%.
Until this is addressed, exponential growth trajectory by Maker (MKR) or Chainlink (LINK) remain unlikely, at least not in the long run. On that note, last week the team lead at the Ethereum (ETH) Foundation, Péter Szilágyi, confirmed Dec. 4 as the expected date for the network’s forthcoming Istanbul hard fork, at block 9,069,000. He provided Geth mainnet node operators with a link to a new maintenance release designed to begin the hard fork’s initialization. Geth is the name given to one of the two most popular clients used to operate nodes on the Ethereum network — the other being Parity.
Looking at the broader macro theme, it is worth highlighting that strategists at two giant Wall Street banks closed out their bets on gold. Specifically, JPMorgan’s asset-allocation team including Marko Kolanovic, Nikolaos Panigirtzoglou and John Normand said it unwound its gold hedge, moving to an underweight recommendation from an overweight one. Citigroup’s strategists, including Jeremy Hale, also abandoned a long position in gold in their asset-allocation. Bitcoin maximalists have shown particular admiration for the yellow metal but after topping the $1,500 level in late August, the upside run out of steam around $1,560.
Coincidentally, the risk on sentiment is also set to benefit from another Santa Claus rally. As pointed out by Tom Lee, head of research at Fundstrat Global Advisors, the market (equities) are in the final eight weeks of 2019, and roughly the start of the Santa Claus rally. He added that this effect [has been] very strong in the last 20 years and that since 1998, when the S&P 500 was up more than 9.5% from the beginning of the year through the first week in November, the average further gain is 4%, while there has been a positive gain in 10 out of 10 cases, he pointed out.
Thank you for reading,
The BeQuant’s Analytics team