Bitcoin Futures ETF’s Listing Pushed the Market to a New High, While the Risk of Debt Reduction Brought More Variables: Weekly Market Review From Blofin

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The listing of bitcoin futures ETFs has led to a sharp increase in the demand for bitcoin and ethereum futures from traditional institutions, which has made CME one of the largest futures exchanges in the crypto market at present, but it has also made a macro-economic impact on the crypto market Significantly enhanced.
  • The listing of the first bitcoin futures ETF has pushed the market enthusiasm to a new high, with bitcoin prices and the market value of cryptos setting new records.
  • The listing of bitcoin futures ETFs has led to a sharp increase in the demand for bitcoin and ethereum futures from traditional institutions, which has made CME one of the largest futures exchanges in the crypto market at present, but it has also made a macro-economic impact on the crypto market Significantly enhanced.
  • Powell's supportive remarks on liquidity contraction have made the market pullback after breaking through a new high, but the high inflation pressure in the market that may last for several months will provide a solid support for the recent performance of cryptos.

Bitcoin Futures ETFs "have finally arrived"

On Monday, the ProShares Bitcoin Futures ETF officially entered the New York Stock Exchange with the second-highest trading volume on record. The ETF changed hands by more than 24 million units and traded nearly $1 billion in 24 hours, according to data, second only to BlackRock's carbon-neutral ETF. Subsequently, BITO-based options contracts began trading on the New York Stock Exchange's Arca Options and the New York Stock Exchange's American Options exchange on Wednesday; on Friday, the Valkyrie Bitcoin Strategy ETF began trading on the NASDAQ exchange. Grayscale also applied with the SEC to convert the trust into an ETF.

Affected by this, Bitcoin and Ethereum prices have hit record highs, and the market value of the market also recorded a new record of $2.66T on October 21. The CME Futures Exchange's market share reached 20.63%, its Bitcoin futures contract positions exceeded 5 billion U.S. dollars, and Ethereum futures contract positions exceeded 1 billion U.S. dollars, becoming a pivotal presence in the market.

From the perspective of volatility, the market performance is still relatively stable in the context of the frequent listing of bitcoin futures ETFs, but the rise in market expectations has pushed bitcoin's implied volatility to a high of about 150 in a short period and has also pushed up the skewness of bitcoin's near-medium-term options. It is worth noting that the last time a similar situation occurred was at the beginning of the market recovery on July 26.

From the perspective of futures premium, due to the strong positive bitcoin ETF to the market, the near and medium-term futures premium once exceeded 20% and is currently maintained at about 12-15%. However, from the perspective of the term structure, investors' investment desire for forwarding futures remains at a low level of about 12%, and the market's worries about the reduction of forwarding liquidity remain unchanged.

Regulatory Views Differ, While Liquidity Risk Still Dominates the Market

Most countries remain cautious about investing in cryptos, despite the passage of Bitcoin ETFs in the US and Bitcoin ETFs investments from a wide range of compliant institutions, including pension funds. Russia's central bank said it was not yet ready to allow Bitcoin ETFs to be traded in Russia, while the Securities and Exchange Commission of India (SEBI) announced in its notice a ban on investment advice related to unregulated instruments, including cryptocurrencies. However, the US Office of the Comptroller of the Currency (OCC) has quietly expressed support for banks' cryptocurrency trading, and the impact of regulatory risks on the crypto market is no longer obvious for the time being.

In contrast, liquidity risks have risen again. Speaking on a panel at the Bank for International Settlements-South African Central Bank Century meeting on Friday night, Mr. Powell, the Fed chairman, said the central bank should start reducing its support for the economy by tapering its asset purchases, but that it did not need to move interest rates yet and would "certainly" act if inflation continued to rise. The comments appeared to open the door to the Fed's fears that it needed to raise interest rates to prevent inflation from getting out of control, which would weaken the jobs recovery. The Fed has signaled that it may begin to taper its monthly purchases of $120 billion of Treasuries and mortgage-backed securities next month. About half of Fed policymakers believe a rate rise will be needed in 2022, with a minority saying it may have to be before the summer of 2022. The anticipation of a rate rise has undoubtedly affected market expectations, prompting a pullback in the highs of crypto prices. However, as high inflation continues, crypto prices still have a relatively solid foundation.

It is worth noting that the yield on the two-year Treasury bond, which is closely related to the Fed's policy, rose to 0.488% at one point, the highest level since March 2020, indicating that the Fed is more likely to raise interest rates next year. Longer-term Treasury yields fell, and the difference between the yield on the five-year Treasury and the 30-year Treasury bond plummeted to about 85 basis points. This is the lowest level since April 2020. Due to the increase in the number of participants in the crypto market, liquidity risk is the focus of crypto investors from traditional markets. Expectations of an early interest rate hike by the Fed will also increase the possibility of such investors leaving the market at high profits, thus significantly affecting asset prices in the short term, which needs to be guarded against.

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