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The Open Interest & Bitcoin Futures, Germany's Central Bank & Crypto
June 04  |  4 min read

Race to the Bottom

BeQuant Analytics, a daily cryptocurrency market analysis contributor

Flight-to-quality continues to dominate across traditional financial markets, so much so that gold prices hit their highest levels in two months on Monday amid the never-ending uncertainty surrounding global trade talks, as well as the ongoing Brexit negotiations. As a result, US Treasury yields continued to track lower and are now below the 2.10% mark for the first time since September 2017. At the same time, the long end of the curve, the 30-year yield fell 4.8bps to 2.5204%, a level not seen since November 2016. Meanwhile, the tech-heavy Nasdaq Composite index entered correction territory, as investors continued to fret over the tariff threats against Mexico and China.

They say cash is king and in times of distress and uncertainty, even the uncorrelated assets such as cryptocurrencies are not immune to pullbacks and corrections. At the end of the day, you can’t pay your bills in Bitcoin and even if you could, the transaction would end up meeting fiat banking rails at one point or another. Even the CEO and founder of Tron, Justin Sun, who won an eBay charity auction to have lunch with renowned investor and Berkshire Hathaway CEO, Warren Buffett, will pay a record-breaking $4,567,888 (in fiat money, not crypto).

The state of play is this - The first major attempt to reverse the ultra-loose monetary policy efforts by global central banks is proving to be somewhat short lived, the Fed is under increasing pressure to ease off the tightening pedal and the ECB has little option but to continue its efforts given the political uncertainty surrounding Brexit. Crypto maximalists have been quick to point out that the macro tail risks, together with the looming risk on price rally, which is to be driven by another wave of monetary policy actions, should be very supportive to crypto assets. A few go as far as to state that pension funds should be investing in crypto given the potential for price appreciation. The risk on trade may indeed materialize, following that what the central banks have bought has proven to be a very profitable trade in the past. The hunt for yield may even drive flow into Bitcoin, but remember that this flow can easily be to short the asset…

In terms of the latest news flow, the open interest on CME Bitcoin Futures contract hit a record high last Friday. Specifically, the total figure of 5,190 for the period of May 27 to June 3 represents the largest number of open interest, or contracts outstanding, in CME bitcoin futures ever, and a 7% gain on the week prior.

Elsewhere, the head of Germany’s central bank has said central bank digital currencies could destabilize financial systems and worsen bank runs. In a speech at the opening of the Bundesbank Symposium in Frankfurt, Germany, on May 29, Deutsche Bundesbank president Jens Weidmann said the widespread use of digital central bank money could have “serious consequences” and should not be introduced without being well thought through.

Thank you for reading,
The BeQuant’s Analytics team