The market remains in a jubilant mode, with Bitcoin rallying above $8K and Ethereum advancing all the way to $215. Citing CME Group, the Chicago exchange declared its Bitcoin futures product recorded a new all-time record of 33.7K contracts sold in one day — shattering the prior records of 22.5K and 18.3K set on Apr. 4 and Feb. 19, respectively. Another market positive statistic is the growth of Grayscale Bitcoin Trust flows which reached an all-time high in April. Inflows in April (11,236 BTC) were approximately equal to those of the previous four months combined and, USD adjusted, nearly $58.2 million was added to Grayscale’s holdings in April, which is almost as high as the $60.8 million at the height of the bull market in December 2017. What is more interesting is the GBTC premium, which currently stands at nearly 40% and has increased consistently since December.
The US/China trade war developments and the subsequent implications for the USD, as well as onshore and offshore Yuan rates, is also something to keep an eye on as it is a good indicator of hot money flow. The Chinese currency sank to lows for the year amid the escalation and the 7.00 level (vs USD) is seen as the key level. As pointed out by Bloomberg, citing Hao Zhou, a senior emerging markets economist at Commerzbank AG, if the offshore yuan clearly breaches above 6.9, there will be new sell-off as markets need to massively unwind the option trades that were generally betting it would remain range-trading between 6.6 and 6.9.
Looking elsewhere, echoing its status in the rally during the closing stages of 2017 that saw Bitcoin trade near $20k, the market is again beginning to look somewhat complacent (blockchain network fundamentals have yet to show meaningful improvements relative to the price surge) and very crowded. The majority of BTC perpetual rates are back in positive territory and there is a clear decoupling between Bitcoin and the rest of the market. The correlation between BTC and ETH is currently at 0.7 vs 0.9 (earlier in the year). Still, the underperformance by ETH comes even in spite of the growing DeFi market, with nearly $2.5mln of loans originated on the 11th of May by Compound, Dharma and MakerDAO (highest since early April).
Clearly then, even though the amount of ETH locked in MakerDAO credit ecosystem has declined to 1.85% (vs 2.11% at its highs), the recent stability fee hikes all the way to 19.50% have done little to discourage demand for leverage. At the same time, the Decentralized Inter-Protocol Offered Rate (DIPOR) rate stands at 19.45% (vs 19.21% last week), and, more importantly, it is above the MakerDAO stability fee rate. So, while the market may be crowded and there is a risk of a sharp correction, the FOMO effect remains very much in play and Bitcoin looks very much set on testing the 10k level.
Thank you for reading,
The BeQuant’s Analytics team