Bitcoin Is Holding The Line - For Now !

👇1-11) Bitcoin is deeply oversold; influencers advise followers to buy the dip as altcoins appear to weather the storm. Our 10x Research Greed Fear Index is near the lowest levels possible, often associated with lows.

👇2-11) There are many reasons why Bitcoin is selling off: Bitcoin distribution from Mt. Gox (potentially $9bn, starting in July), the German Government selling confiscated Bitcoins ($3bn), Bitcoin miners selling $2-3bn, ETFs selling $1.4bn, OG wallets selling $1.2bn, etc. Hypothetically, this adds up to $16-18bn - similar to the year-to-date Bitcoin ETF inflows.

👇3-11) Our trading signals have provided multiple sell signals for Bitcoin. On June 12, a new volatility signal predicted a decline when Bitcoin traded at 67,339. On June 24, a new price range signal predicted further declines when Bitcoin traded at 61,113. Although many claim the latest drop is due to Mt. Gox fud (and other factors as mentioned above), there appears to be a structural factor hitting the market that could have more profound consequences, leading to deeper declines before a rebound from lower levels might occur.  

👇4-11) Our theory is this: many multi-strategy hedge funds that are long Bitcoin ETFs and short CME Bitcoin futures have decided to close out positions and NOT roll their futures contracts into the next month as the funding rate is less than 10% annualized. The expiry date for those futures is June 28, and we see position squaring (unwinding) ahead of it.

Bitcoin price (white) vs. Funding Rate (purple, annualized)

👇5-11) This ETF selling is the flipside of the February/March flow, which back then was interpreted as bullish buying from ‘institutions.’ Today, the market interprets this as bearish and fears that ETF selling means that the ‘institutions’ are saying ‘adios’ to Bitcoin, considering that this cycle was about institutions' adoption.

👇6-11) Open interest for Bitcoin CME futures declined by -748 contracts expressed in BTC, by 3,740 Bitcoins, which equals $235m. This is close to the $175m Bitcoin Spot sold by ETFs. On Friday, Bitcoin CME futures open interest declined by $90m vs. $106m selling by Bitcoin Spot ETFs. Although we cannot be 100% certain, those numbers match each other closely and potentially indicate that the sale of Bitcoin Spot ETFs is linked to Bitcoin CME futures open interest.

👇7-11) Our main argument three months ago was that the perception of institutions buying Bitcoin through ETFs had driven speculative trading activity in futures, which caused the funding rate to expand. This allowed institutions to purchase the ETFs on a delta (dollar) neutral basis and lock in the yield instead of YOLO-ing into Bitcoin. For every $1bn of Bitcoin ETF buying, they sold $1bn of futures to capture the premium (or funding rate).

👇8-11) Out of the $14.2bn of Bitcoin ETF buying, arbitrage funds account for potentially 30-40% of the inflows, as many 13F filings indicate that multi-strategy funds were buyers of spot while they sold futures. We do not know the exact number, as reported from individual funds are not mandatory. However, as the futures need to be rolled monthly, traders must judge if the premium (funding rate) is high enough to keep the arbitrage game going.

Bitcoin price (white) vs. Bitcoin open interest (purple, $bn)

👇9-11) It's almost comical; there were $144m of Bitcoin futures liquidations during the last 24 hours. Compare this to the 2021 bull market and the subsequent moves in 2022, when there were several days with $1bn, $2bn, $3bn, and $4bn liquidations. According to the chart above, bitcoin futures open interest has been slow to adjust, as $18bn in open interest resembles the BTC price of 66,000 (not 61,000). Many are still long.

👇10-11) Another argument has been that the various money inflow indicators we monitor appear to have paused, which has caused Bitcoin's three-month consolidation period. ETF buying stopped in mid-March due to higher inflation, stablecoin minting stopped after the halving date, and perpetual futures leverage increased after the 19b-4 ETH ETH approval but appears over extended - that’s why we saw $1bn in BTC perpetual futures liquidations last night.

👇11-11) However, as future traders express an over-bullish view that actual ETH ETF buyers will unlikely match (if BTC ETF inflows are weak, who will buy ETH ETFs?), we worry that even more ‘liquidity’ will leave the market. Especially as the average Bitcoin ETF buyer is now flat (average entry price 60,000-61,000), and Bitcoin miners also have an average mining cost of 60,000 per BTC. Those two could continue to liquidate despite the drum beats from the influencers and degens. For now, Bitcoin is holding the line at 60,000 - but for how long? Bitcoin may drop to 50,000.