Bullish Week: Overwhelming Bitcoin Buying Sends OI to May Level While Net Dollar Longs Are Surging
Traders are net-long on the US dollar for 12 straight weeks thanks to the Fed suggesting a possible tapering next month. Meanwhile, bitcoin adoption as legal tender is expected to grow even more strongly in the coming years.
The bullish start of October continues this week as the price of Bitcoin went from $48,250 to as high as $56,645 on Friday. As of writing, BTC/USD is hovering around $55k.
With this latest pump in price, Bitcoin has yet again become a trillion-dollar asset class.
According to Chainalysis, ever since Bitcoin hit it's low late in July, those holding at least 1k BTC have increased their holdings by 172k BTC. Meanwhile, institutional traders have acquired an additional 68k BTC.
Much like the leading cryptocurrency, Ether moved in tandem to start the week at $3,400 to hit $3,675 and is now trading around $ 3565. The overall crypto market cap also grew by more than 9.5% to above $2.4 trillion.
This past week, the biggest gainer in the crypto market has been SHIB which is up by 232%. Other big gainers include FTM (44%), ONE (37%), OHM (25%), BTT (21%), XRP (18%), DCR (16%), AXS 16%), and EOS (15%).
Q4 is looking primed for a significant price-performance with it being historically a bullish quarter combined with the possible upcoming approvals for BTC ETFs in the US, the stabilization of the Evergrande situation, and traditional giants like Soros Fund Management turning crypto-positive.
Despite the 14% uptrend in Bitcoin price, the funding rate is still not heavy, with the highest currently on OKEx at 0.0453%, as per Bybt.
Open Interest is also surging, having climbed to $19.15 billion, a level last seen in early May. In just over ten days, the OI has increased by about $6 billion. As reported, CME is particularly enjoying a heightened activity with OI on Bitcoin contracts sitting at $3.12 billion, the same as FTX and just behind Binance at $4.35 billion, as per Skew.
On Sept. 29, OI on the regulated platform CME was $1.47 billion. For Ether contracts, OI on CME currently at $830 mln is reaching for early Sept. ATH of $860.75 mln — but ranks at 6th place.
This significant increase in OI suggests “institutional demand has been the underlying driver of this move higher,” according to QCP Capital. Additionally, the “unusually large premium on CME indicates an overwhelming amount of outright buying.”
Premium on CME futures has been highest among the major exchanges when typically it is compressed due to the cash-and-carry spread trades that institutional players like to put on — buy spot vs. sell CME future.
Expect volatility, hope for a continued spot bid.
Right now derivatives are trying to join in on this move as though the market is providing a bus stop for them to get on.
OI going up on sharp increase in perp basis / premium pic.twitter.com/lFdVEPoiGM
— Ryan 🐎 Cantering Clark (@CanteringClark) October 7, 2021
This week, Senator Cynthia Lummis R-Wyo. also disclosed buying between $50,001 to $100,000 worth of BTC in mid-August, according to a filing. This, however, isn’t her first Bitcoin purchase, as she first bought it in 2013. She also disclosed buying Bitcoin worth between $100k-$250k in April this year.
Dollar Longs at 2-Year High
While crypto is euphoric, S&P 500 is merely up 2.14% this month and 17.14% YTD compared to Bitcoin’s 90% uptrend in 2021 so far. Gold is also green this month by 1.60% but still down by 7.27% year to date.
When it comes to the US dollar index, it is up 0.56% and 2.74% in this month and year, respectively.
US dollar net longs meanwhile have surged to their highest level in over two years. In the week ended Oct. 5, the value of the net long dollar position jumped to $22.89 billion, versus $16.37 billion in the previous week.
Traders are net-long on US dollar for 12 straight weeks after being short for 16 months, thanks to the Federal Reserve suggesting a possible tapering of its asset purchases starting November this year.
However, before the weekend, the dollar pushed back after data showed US non-farm payrolls increased by just 194,000 jobs last month, compared to the expected 500,000 new jobs.
“U.S. inflation data released next Wednesday may add to evidence that inflationary pressures are proving less ‘transitory' than generally anticipated,” wrote Jonathan Petersen, markets economist at Capital Economics.
“Our view remains that this will push U.S. yields and the dollar a bit higher in the coming months.”
Bitcoin net shorts meanwhile increased to 1,518 contracts — largest since late July — from 883 the previous week.
Developing Countries Leading In Adoption
El Salvador, which continues to see growing bitcoin adoption, is now planning to invest some of the $4 million gains obtained from its Bitcoin operations to build a veterinary hospital, President Nayib Bukele said this week.
The Bitcoin Trust, which was authorized by Congress in August to facilitate BTC and USD transfers, now has a “surplus” of $4 million to its original balance of $150 million, said Bukele.
“So we decided to invest a part of that money in this: a veterinary hospital for our furry friends,” Bukele wrote on Twitter. The veterinary hospital would provide basic and emergency care services along with rehabilitation, he added.
Earlier last week, El Salvador became the world’s first nation to adopt Bitcoin as legal tender. According to BitMEX CEO Alex Hoeptner, Salvador is just the first one as he predicts at least five countries accepting the cryptocurrency as legal tender by the end of next year and all of them will be developing countries.
“Faced with an inherently unequal financial system, those who have the most to lose by continuing the status quo are acting in their self-interest to explore alternative options like Bitcoin.”