Bitcoin
Lagging Bitcoin futures premium shows BitMEX is losing investor trust
For BitMEX, 2020 has been quite a rough year and from the look of things it’s only set to get worse.
The popular derivatives exchange is no longer as relevant and impactful on crypto market price action as it was 2 years ago, but a significant short-term price correlation among top exchanges has been proven repeatedly.
A well-documented case occurred in May 2019, when a large sell order on Bitstamp caused a cascading $250 million liquidation on BitMEX.
The following month, a Coinbase exchange outage triggered a $1,400 Bitcoin (BTC) price nosedive, as reported by Cointelegraph. A well circulated report by Bitwise Asset Management clearly showed that the top exchanges traded “extremely tightly.”
The report detailed how top exchanges influence pricing suggested that their movement is synchronized even when measured in milliseconds.
While BitMEX has denied the CFTC allegation of operating an illegal derivatives exchange, the problem is markets are not taking those words at face value, at least in terms of the futures premium.
Whenever a trader opts to buy or sell a futures contract, one is incurring the exchange’s solvency risk.
Even though it is possible to deposit a smaller amount and leverage the position, the margin is unlikely to be recovered if the exchange is hacked or suffers unexpected losses.
Therefore, if one exchange’s futures premium differs from the majority, it is a very worrisome signal as it represents lack of trust.
BTC 3-month futures premium. Source: Skew
The chart above shows how the BitMEX BTC futures premium has lagged behind the competition. This effect has also occurred in the past, but there has never been a continuous 5% difference.
In normal situations, this would be considered an arbitrage opportunity. Savvy traders would buy BitMEX’s cheaper contracts and simultaneously sell it using another venue.
What should have been a regular trading movement escalated to a situation where futures contract buyers are unwilling to participate no matter how much cheaper BitMEX’s contracts are. This is primarily because traders are worried about solvency risks.
This price action is a self-fulfilling prophecy, where the lack of participants drives liquidity away, increasing withdrawals, and ultimately causes BitMEX’s pricing to decouple from other major exchanges.
This negative spiral can happen even if one excludes the horrific scenarios of BitMEX funds being seized by government agencies, or worse.
Will BitMEX find its second wind?
Bitcoin futures volume by exchange. Source: Digital Assets Data
Therefore, BitMEX’s dismissal can happen regardless of its futures open interest and trading volumes. The longer its premiums stay below competition, the less credible the exchange will be in the eyes of investors.
This cycle will likely lead to more investors pulling their funds and permanently closing their accounts at BitMEX. There is also the possibility that these departures will cause a short-term negative price swing.
To conclude, investors must not overlook these serious issues simply because BitMEX is honoring withdrawals or maintaining its current share of the market. Traders tend to overvalue volume and open interest metrics, but both can be easily inflated.
The futures premium, on the other hand, is very expensive and difficult to manipulate.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
- Bitcoin has seen some mixed price action as of late, with bulls being unable to take control of its trend in the time following its rally up to $28,500
- The rejection here was quite intense, and it has yet to show any signs of strength in the time following this occurrence
- The fact that bulls have guarded against any deeper drawback is positive because it invalidates the possibility that this recent high is a blow-off top
- One trader is now noting that there is an incredibly bullish indicator that is flashing for Bitcoin
- He points to the cryptocurrency’s monthly RSI, noting that a monthly close above a specific level that it is nearing is historically followed by parabolic moves higher
- In the past, these movements have had an average return of 1,010%, but their size and length seem to diminish with time
Bitcoin and the entire crypto market have declined over the past 12 hours, which appears to be the direct result of the pressure that XRP is placing on the market due to its latest selloff.
Where the market trends in the mid-term likely won’t depend on XRP, which means that this latest round of selling pressure may mark a knee-jerk reaction from investors.
One analyst is noting that Bitcoin’s monthly RSI is flashing an incredibly bullish sign for where BTC trends next.
Bitcoin Struggles to Gain Momentum Following $28,500 Rejection
At the time of writing, Bitcoin is trading down just over 1% at its current price of $26,700.
The crypto has been trading between the upper-$26,000 region and the lower-$27,000 region throughout the past few days.
It has yet to garner enough buy-side support to break above the heavy resistance laced throughout the lower-$28,000 region. For now, this peak could mark a blow-off top.
Indicator Suggests BTC is About to Go Parabolic
One trader explained in a recent tweet that Bitcoin could be on the cusp of seeing a parabolic move higher in the days and weeks ahead.
He points to the cryptocurrency’s monthly RSI as an indicator for this possibility.
“BTC – Monthly RSI. Monthly candle is about to close above 80. When this happens, bullish trend continues, with an avg. return of 1010.87%. Each cycle is shorter.”
Image Courtesy of il Capo of Crypto. Source: BTCUSD on TradingView.
The coming few days should shed light on Bitcoin’s trend, as continued weakness could confirm $28,500 as a local high and lead to a deeper retrace.
Featured image from Unsplash. Charts from TradingView.
Bitcoin has had an explosive breakout year as a maturing financial asset,. The cryptocurrency is finally being considered by institutional investors for the first time, during a year that will go down in history for unprecedented money printing.
The asset’s hardcoded digital scarcity is a primary driver of its boom and bust cycles, and in the year following each block reward halving, magic happens. With the new year right around the corner, here’s a look back at past crypto market cycles for a glimpse at what to expect from Bitcoin in 2021.
Looking Back At Historical Bitcoin Market Cycles
All markets are cyclical and go through distinct phases of bear and bull trends. These cycles can take place over the course of decades, or a handful of years. In crypto, cycles often move faster than traditional assets due to the always-on, 24/7 market.
But because Bitcoin is just over a decade old, there are only a couple of boom and bust cycles at which to glean any useable data. In technical terms, when Bitcoin breaks its former all-time high, the new bull market is on.
Fundamentally, this occurs every four years following the asset’s block reward halving. This built-in mechanism slashes the supply of BTC in half at a time when demand is beginning to resume.
RELATED READING | NY TIMES BESTSELLING AUTHOR: BITCOIN S2F IS FLAWED, NOT MATHEMATICALLY SOUND
The combined effect of suddenly diminished supply and growing demand throws buying and selling equilibrium so out of balance that price appreciates exponentially.
2020 has acted as the ideal example of the impact each halving can have on the market. Bitcoin went from “a fad” to full-blown FOMO in less than nine months, all because supply and demand is so favorable to positive ROI.
And while 2020 was definitely a breakout year for a bullish Bitcoin, it is next year that will make a new wave of Bitcoin billionaires.
Halving years are marked in blue. In the year following, the cryptocurrency goes full parabolic | Source: BLX on TradingView.com
Move Over 2020, Why 2021 Will Be The Cryptocurrency’s Best Year Yet
Glancing at the chart above and it’s shocking to see just how high Bitcoin has climbed in twelve years. During the twelve years of trading, the cryptocurrency has had three distinct halvings, cutting the reward miners receive from 50 to 25 BTC, then from 25 to 12.5 BTC, to the current 6.25 BTC.
Each time this happens, demand begins to so drastically outweigh the limited supply, the asset goes parabolic and rises exponentially.
RELATED READING | BITCOIN BULL RUN IS OFFICIAL ACCORDING TO MONTHLY RSI, MORE BULLISH THAN 2017
In the two post-halving years on record, the first resulted in well over 6,000% ROI and the second just under 2,000% ROI. What could 2021 bring crypto investors?
Another 2,000-6,000% return isn’t likely simply due to the law of diminishing returns, however, even a 400% increase from current levels would result in a price of $125,000 per BTC.
Featured image from Deposit Photos, Charts from TradingView.com
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