Crypto News

Bitcoin ETF Mania: Explosive Futures Fund Smashes Records, Unleashing Unprecedented Boom

Bitcoin futures ETFs have experienced a remarkable surge in activity this year, with the ProShares Bitcoin Strategy ETF (BITO) leading the way. Available on the Chicago Mercantile Exchange (CME), and heralded as the first ETF of its kind, it provides traders and investors with an avenue to gain exposure to a fully regulated Bitcoin (BTC) futures fund without the complexities associated with physically holding the asset and attempts to track price accurately. Unlike the traditional process of purchasing Bitcoin from an exchange, followed by withdrawal and storage in a personal wallet, BITO offers a more streamlined and time-efficient alternative.

Notably, the ETF has reached unprecedented heights, boasting a recent milestone of $1.47 billion in assets under management (AUM), surpassing the previous record set in December 2021. This surge in demand is likely attributed to the anticipation surrounding the potential introduction of a Bitcoin Spot ETF, which could be announced very soon. The prospect of such an offering could expect to attract additional capital into the cryptocurrency space and ETFs.

Reflecting the escalating interest, BITO witnessed a record weekly demand of $65 million in April, a figure that was later eclipsed in June with a staggering $160 million recorded as the average daily volume since the fund's inception. Remarkably, this volume constitutes 5% of all U.S. ETFs, underscoring the ETF's significant market presence. Despite recent regulatory challenges in the cryptocurrency space, institutional investors continue to demonstrate a keen interest in gaining exposure to digital and blockchain assets.

Against this backdrop, Bitcoin has exhibited steady growth, registering a 144% increase from its November 2022 lows at the time of writing.

Scandal Unveiled: Polygon Covertly Injects Millions of Tokens into Ill-Fated Validator 

Polygon, a titan in the blockchain layer 2 scaling realm, has plunged into a storm of scandal by covertly showering DraftKings, a major sports betting firm, with millions in its native token, Matic, to assume the role of a validator on its network. The shroud of secrecy surrounding this deal is nothing short of astonishing, especially considering that last month, DraftKings faced expulsion as a validator for failing to meet performance standards, a stark contradiction to Polygon's touted commitment to equal treatment of all validators.

In the early throes of 2022, Polygon trumpeted the revolutionary inclusion of DraftKings as the inaugural public company to undertake the validator mantle on its network. This groundbreaking alliance involved a hefty payment of 60 million Matic tokens for transaction verification, supplemented by additional tokens for staking rewards. While the practice of rewarding validators is customary in the cryptocurrency realm, Polygon conveniently omitted the crucial detail of the exact Matic token allocation to DraftKings, leaving a glaring disparity compared to their counterparts.

Adding fuel to the fire, DraftKings imposed a staggering 100% commission on rewards, callously depriving smaller delegators of any Matic tokens. This complete lack of transparency and unequal distribution has ignited the ire of investors, resulting in a steep 22% plummet in the price of Matic from its November highs. The situation is a resounding testament to the imperative need for transparency and impartiality in blockchain collaborations, especially when entwined with major public entities.

SEC and Asset Managers in High-Stakes Meeting As Potential Approval for Bitcoin Spot ETF Looms

The Securities Exchange Commission's (SEC) recent publication of two memos has substantially tilted the odds in favour of a Bitcoin Spot ETF receiving approval in January 2024. A pivotal week saw the SEC engage in discussions with major players in the financial landscape, including investment behemoth BlackRock and U.S. trading exchange, Nasdaq. Subsequent talks with Grayscale focused on the conversion of their Grayscale Bitcoin Trust into a Spot ETF. This marks a significant shift, considering the SEC's earlier resistance to such funds. Despite legal challenges to the SEC's decisions and ongoing negotiations, industry insiders are highly optimistic about the Spot ETF gaining approval early next year.

SEC Chair Gary Gensler, previously known for his skepticism toward cryptocurrencies, has signaled a more open stance by expressing a willingness to consider feedback from his staff. While approval is not guaranteed, acknowledging diverse perspectives within the SEC suggests a positive trajectory.

The delay in regulatory approval has introduced the possibility of multiple approvals occurring concurrently, underscoring the evolving dynamics of the cryptocurrency landscape. Notably, Grayscale's strategic move in appointing former Invesco ETF executive John Hoffman as Managing Director underscores the company's readiness to swiftly launch the ETF upon regulatory green light.

Bitcoin's price, which has more than doubled since its November 2022 lows, is intricately tied to the heightened expectation surrounding the Spot ETF. The looming question is whether approval will spur further extensive gains or trigger a "sell the news" event. Investors find themselves in a state of anticipation, adopting a "wait and see" approach on that particular matter. One thing is for sure, the outcome of this regulatory journey holds the potential to shape the future trajectory of the world's largest cryptocurrency asset.

In Other News

• Ronaldo Confronts Massive $1B Class Action Lawsuit Linked to Binance Controversy

• New Binance CEO, Richard Teng: Explosive Growth Led To Compliance Failures

• Report Shows North Korean Linked Hacker Lazarus Group, Stole $3 Billion In Digital Assets Over Six Years

Crypto Analysis

Bitcoin

Over the past 24 hours, Bitcoin has broken the important psychological $40,000 and in doing so has surged to 20-month highs. Until last week, indicators hinted at the possibility of a potential slowdown. However, this week's price action specifically, an overnight price surge has vigorously propelled Bitcoin upwards, casting serious doubt on this scenario. Nevertheless, despite the ongoing uptrend and higher highs, we will cover certain factors that may merit consideration.

When looking at the volume over the medium term, which has been, at best, average, it's essential to factor in that the current situation, with a notable green candle today, might indicate a potential for further upside and put all bearish narratives to the side. Examining the daily chart and the RSI indicator, responsible for tracking momentum, reveals a mid-range position. This indicates the potential for further price growth, especially looking at today's large move. However, we must observe a significant bearish divergence, which is now evident in the RSI, contrasting with the upward movement in price.

Despite the price continuing to climb well above the 10-day exponential moving average (EMA) and each consolidation breaking to the upside, the RSI's pronounced downward slant raises concerns, and as the price diverges farther from that 10-day EMA, the probability of pullback increases. This week, I've opted to showcase the weekly chart, as we head ever closer to the 50% level from the all-time high of $69,000 to the November 2022 low at $15,476, currently standing at $42,261. The 0.618 level at $48,596 shows increased resistance, and approaching the 50% mark, a midpoint between bullish and bearish sentiments, warrants closer scrutiny. Three marked blue arrows on the chart indicate a potential convergence of resistance as we approach this level. Noteworthy is the meagre volume during the blue horizontal breakout in the week of October 23rd and subsequent volumes. Strong volume from the November 2022 lows suggests that further upward breaks may benefit from increased activity. Additionally, the weekly RSI is in overbought territory. 

All things being considered, it would be complete folly to ignore this huge upward price move, and with price sustaining its upward trajectory, with the 50-day EMA further widening from the 100-day EMA, especially with the holiday season approaching, a possible Santa rally, and no topping pattern in sight, the path of least resistance remains upward, at least until there is any break of a potential swing low. Our monitoring of Bitcoin's weekly performance will continue.

Binance Coin (BNB)

The current state of BNB is gripping, especially considering the recent developments it has weathered. While conventional wisdom dictates that price aligns with fundamentals, in this instance, that assumption seems to miss the mark. In our analysis, we'll focus solely on the technical aspects.

What stands out on the chart is the potential for a bottom, a noteworthy prospect given the prevalent uptrend in most major altcoins, juxtaposed with BNB's short to medium-term downtrend. So, where do we stand? From the October low of $202 to the November high of $271.9, the price has descended, seeking support around the 0.618 level at $228.7. An intriguing pattern is emerging – a possible double bottom.

Adding the Volume Profile Indicator to the chart, positioned roughly at the 0.618 level, unveils significant volume markers from right to left and another point of interest at the 0.786 level at $217 as shown by the red curves in those areas. This tool, coupled with the convergence of support or resistance, offers insights into potential turning points, as evident here.

Examining the indicators, the RSI is mid-ranging, indicating room for movement in either direction. Meanwhile, the stochastic RSI ventures into overbought territory, and with diminishing volume as the price stabilises, a bounce appears plausible, aligning with the preceding analysis.

Examining the monthly chart, the price currently resides between the 0.618 and 0.786 levels, referencing the period from the major March 2020 lows to the all-time May 2021 highs. What's particularly noteworthy is the substantial 5-point support level, indicated by the blue arrows and the green rectangle pattern. This is further emphasised by the confluence of support on the daily chart, rendering this zone of utmost significance. A breach below this level has the potential to lead the price towards the 0.786 level at $152.6. The stochastic RSI is oversold and crossing to the upside which can be a prelude to an upside move in the market as can be seen previously on this particular chart but certainly not guaranteed. It is important to note that overnight, ADA experienced another positive rebound from the support. Our vigilant observation of this asset will persist, monitoring for any substantial rebounds or breaches.

Avalanche (AVAX)

I've opted for the Avax chart due to indications of a possible, imminent, and significant breakout and rally. Let's begin with the daily chart, where the 100 & 50 EMA’s are gradually expanding, price is climbing above the 10 period EMA and the price is steadily ascending towards the recent November highs of $24.69. The RSI sits in the mid-range, suggesting ample room for price growth. Additionally, the stochastic RSI is crossing upward, rising from an oversold position. Notably, the chart exhibits a surge in volume during the recent upward movement, indicating potential momentum for a substantial move.

Turning to the monthly chart, there's an ongoing effort to break and close above the major weekly resistance at $20.78, evident in strong green candles marked by the horizontal black line and four blue candles. A successful break above this level could propel the price to the next resistance level, identified by the green candle and a small black horizontal line at $31.04. The proximity to breaking such a significant level, coupled with the price moving along that 10-day EMA and resting just at those highs, enhances the likelihood of an upside breakout, though it's not guaranteed. If there are additional upward movements from this point, we will consider laying out Fibonacci levels. I'm eager to revisit and analyse this chart in the near future,

Macro News & Analysis

TradFi’s Growing Interest in Bitcoin

Over the past 6-12 months, bitcoin has been getting more attention from business media such as Bloomberg and CNBC. I’ve heard bitcoin mentioned in some of the many tradfi podcasts I listen to. I’ve heard people who I wouldn’t expect to talk about crypto, never mind in a positive light, talking positively about crypto. I’ve heard people who don’t understand Bitcoin and crypto recognise that whilst they don’t understand it, they can see many do.

As Ashley Duke discussed above, bitcoin made a decisive break through $40k yesterday and is making mainstream media headlines, along with gold which made a new all-time high in early trading this morning. Bitcoin-related equities such as publicly-traded miners, Coinbase and MicroStrategy are all up significantly in pre-market trading, which isn’t available to retail traders:

Big money has started flowing into bitcoin and it's not retail. FTX and associated fraud has been cleared out. Binance has been sorted out this year and Changpeng Zhao no longer runs the company. US authorities continue to work on other issues as well. Crypto is being cleaned up and is maturing.

This has given institutional money the confidence to dip their toes in bitcoin and crypto waters, as the charts above demonstrate. We haven’t seen the retail euphoria stage yet and already bitcoin is at $40k. In my opinion, as bitcoin’s market cap grows, and as liquidity improves, we’ll see more big players get involved. Big money needs deep, highly liquid markets and liquidity begets liquidity.

Liquidity is why big caps move first and momentum continues - for big money orders, it’s all about liquidity. This generates a flywheel effect where increased flow and rising momentum draw in other big players.

The spot ETFs seems to be when and not if now. Once available, and over the next quarters and years, I believe we see bitcoin/crypto market capitalisation grow more – and faster – than any of us can imagine possible. I think we’re just getting started on the most exciting part of bitcoin’s S curve, as illustrated in this chart from Osprey Funds:

Can November’s Rally Continue?

November’s move in equities was the biggest monthly gain since July 2022 and one of the strongest Novembers on record. The US bond market has rallied as well, clocking its best month since May 1985 according to the Bloomberg US aggregate bond index and the Bloomberg global aggregate index saw its strongest month since December 2008. So the question is, can this performance continue?

Deteriorating data

Despite deteriorating data and talk of a globally synchronised recession, it just hasn’t happened. Granted, China is definitely struggling and parts of the eurozone have seen recessions but the US and even the UK have so far avoided recession territory.

US strong despite continued recession calls

The US in particular has been surprisingly resilient which, with hindsight, is rather obvious given how much fiscal stimulus there’s been since covid, along with huge deficit spending on on-shoring chip manufacture and supporting two wars amongst other things. Yes, there have been continuing layoff announcements, there have been – and continue to be – businesses bankruptcies, debt delinquencies and defaults and lower income households have really felt the inflationary pressure. But whilst each of these sectors have gone through recessionary periods, it hasn’t been enough to push the aggregate economy into a recession and neither does that look likely any time soon.

Markets pricing a recession? Or pricing a recovery?

Whilst the stock markets appear to be doing their up and to the right bit, there are differing views on what the bond and rates markets are pricing.

Last Tuesday Fed Governor Christopher Waller said he is “increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 percent”. Friday saw Fed Chair Jerome Powell’s much anticipated speech where he pushed back on market expectations of aggressive rate cuts in 2024 and saying it “would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance” but his tone was nothing like that of the uber-hawk Jay Powell we saw at Jackson Hole in August 2022.

Markets took both speeches as dovish, with equities rallying, yields falling, a dollar sell off and futures markets pricing in bigger rate cuts next year. Economists are divided in how they interpret the drop in longer bond yields with some arguing it’s a recession being priced in while others arguing it’s markets pricing for recovery.

Positive outlook

Joseph Wang, former senior trader on the Fed’s open market desk and monetary plumbing expert, makes a strong argument in his Saturday podcast for recovery being far more likely. Joseph argues that rates futures re-priced in reaction to Fed Governor Waller’s comments on how if inflation continues to fall, they can cut rates accordingly to maintain the current level of monetary restrictiveness. Last week also saw constructively revised economic data, with GDP adjusted higher and PCE adjusted lower:

This combination of how markets repriced, along with improving economic data, is why Joseph argues recovery is far more likely to be the outcome than an economy-wide recession.

Israeli-Linked Ship Attacks

It’s not all good news though. Tensions are rising in the Middle East with multiple attacks on Israeli-linked commercial ships in the Gulf of Aden and the Red Sea, which form part of the busy Suez canal route. The latest attacks happened yesterday a 3 more commercial ships which are “believed to have connections with Israel”, according to ABC News.

Whilst these attacks have so far been targeted at Israeli-related ships, carriers are understandably looking at alternative routes and in some cases have already redirected traffic. This in part is due to increased insurance premiums on ships using the Suez canal, a major route for global marine traffic.

Israeli shipping company Zim (NYSE:ZIM) has diverted away from the Suez canal.

Drought at Panama Canal

The Panama Canal, another key global shipping artery, is currently experiencing unseasonal drought at a time of year that typically sees peak wet season. Lack of rainfall in the Panama region has left water levels at lake Gatun, which feeds both the canal and local water supplies, lower than they usually would be in the summer dry season.

Maritime expert and podcaster Sal Mercogliano said on Freightwaves TV that the industry is looking at up to a 50% reduction in traffic through Panama canal with ships waiting up to 2-3 weeks to use the route at the moment. Spot transit prices have in some cases more than doubled for priority shipments. As water levels fall, it not only means fewer ships but reduced cargo to limit the weight being carried through the canal at any one point.

Container shipping is not affected so much but fuel tankers and grain shipments are facing delays and/or higher costs. Despite this disruption, John McCown said in the same interview he doesn’t see this having any major effect on shipping timings or rates yet but is certainly something to keep an eye on.

This Week’s Key Events

Monday

US factory orders, durable goods

Tuesday

Reserve Bank of Australia rate decision

Japan CPI

China Caixin services PMI

South Korea CPI, GDP

Eurozone manufacturing and services PMIs

Wednesday

Australia GDP

Bank of Canada rate decision

Eurozone retail sales

Thursday

China trade, FX reserves

Eurozone GDP

Germany industrial production

US wholesale inventories, initial jobless claims

Friday

Japan household spending, GDP

US non-farm payrolls

University of Michigan consumer sentiment

Final Thoughts

November was a very strong month across nearly all markets, sparked by a surprisingly bullish Treasury refunding announcement at a time when markets were very oversold. This led to massive short-covering rally and some degree of performance chasing. But can it continue?

The first half of December typically sees some level of correction as US mutual funds make their annual distributions to satisfy excise tax requirements. Then portfolio rebalancing and window dressing takes place through end of December as portfolio managers make holdings look good for annual reports.

Whilst last month was incredible, there are still seasonal end of year flows to enter the market which, after a much needed consolidation period, could feasibly keep momentum going into year end.

Usual caveat: anything discussed in this newsletter is the authors’ opinions and observations and nothing here constitutes financial advice or recommendations. Always do your own research and seek independent financial advice when required.

And with that, enjoy the rally while it lasts and long may it continue!