The price of Bitcoin has a really well-paved path to the next bull run. However, several major price threats still remain in play.
Bitcoin price rose 26.5% in October and several indicators reached annual maximum. Is part of them BTC futures premium and Grayscale Bitcoin Trust (GBTC) discount.
For this reason, it is very complex present a bear market thesis for BTC. This is because the data reflects the recovery period after the FTX collapse. They are also influenced by recent by raising interest rates by the Federal Reserve System of the United States of America.
Despite the positive indicators Bitcoin remains approximately 50% below its all-time high of $69,900. It reached its all-time high in November 2021. Gold, on the other hand, is trading just 4.3% below the March 2022 $2,070 level. This stark difference between bitcoin and gold highlights that the adoption of bitcoin as an alternative security is still in its infancy.
Before deciding whether bitcoin rally, caused by ETF newssignals signs of interest from institutional investors, it is essential for investors to analyze the macroeconomic environment.
US budget problem raises institutional hope for bitcoin
On October 30, the US Treasury Department announced that over the next six months will auction $1.6 trillion in debt. But the key factor to watch, according to CNBC, is the size of the auction and the balance between shorter-term T-bills and longer-maturity bonds.
Stanley Druckenmiller is a billionaire and the founder of Duquesne Capital. He criticized Treasury Secretary Janet Yellen’s focus on short-term debt and labeled it as “the biggest mistake in the history of the Ministry of Finance.” This an unprecedented increase in the indebtedness of the world’s largest economy led Druckenmiller to conclude that praised bitcoin as an alternative store of value.
A surge in open interest in Bitcoin futures hit the highest level since May 2022 in the amount of USD 15.6 billion. This interest can be attributed to institutional demand caused by inflationary risks in the economy.
Bitcoin futures premiumwhich measures the difference between two-month contracts and the spot price, reached its highest level in more than a year. These fixed monthly contracts typically trade at a slight premium to spot markets. This suggests that sellers are demanding more money to delay settlement.
Demand for leveraged long BTC positions has increased significantly. This happened as the premium on futures contracts jumped from 3.5% to 8.3% on October 31. For the first time in the last 12 months, it crossed the 5% mark, which is marked as neutral to bullish.
Speculation on institutional demand is further fueling Grayscale’s GBTC fund discount, which is narrowing the gap with the equivalent underlying asset BTC. GBTC was trading at a 20.7% discount on September 30, but that shortfall has since narrowed to 14.9%. This is because investors expect a higher probability of spot Bitcoin ETF approval in the United States.
Not everything is rosy for Bitcoin, it faces exchange risks
Although the data seems undeniably positive for Bitcoin, especially compared to previous months, investors should take the numbers provided by the exchange with a grain of salt. Especially when it comes to unregulated derivative contracts.
US interest rate climbs to 5.25% and currency risks escalate further after FTX. So the futures premium with 8.6% on Bitcoin not so bullish, as it looks at first glance. For comparison, the annualized premium CME for Bitcoin is 6.8%. Comex gold futures trade at a premium 5.5%. Futures on the S&P 500 CME trade at a premium 4.9% above spot prices.
The Bitcoin futures premium is not excessively high in the larger context, especially considering that Bloomberg analysts give spot Bitcoin ETF a 95% chance of approval. Investors are also aware of the general risks in cryptocurrency markets, as highlighted by US Senator Cynthia Lummis, who called on the Department of Justice to take action “quick steps” against Binance and Tether.
The approval of a spot Bitcoin ETF could trigger selling pressure from GBTC holders. A portion of GBTC holders totaling $21.4 billion will finally be able to exit their positions after years of restrictions from Grayscale and exorbitant 2% annual fees.
Thus, the positive data and performance of Bitcoin essentially reflect a reversion to the mean rather than excessive optimism.