More Bitcoin Supply Ready to be Sucked Out of the Market
With more than $1 billion tied up in hedge fund arbitrage-shorts, they need long-spot positions to hedge further, driving the supply shortage, notes Charles Edwards of Capriole Investments.
Bitcoin currently trades around the all-time high, coinciding with a weekly resistance level. On the lower timeframe, as the downward trend pattern breaks, we could see the continuation to new highs.
The $6 billion Bitcoin futures and options expiry last Friday also suggests that downward pressure on the price has eased. “In the past months, Bitcoin has set local bottoms around important option expiration dates,” noted Charles Edwards of Capriole Investments.
The growing interest in these products means they can have a significant impact on BTC price.
In the futures market, contracts are trading at significantly higher prices than the underlying asset. And by buying spot Bitcoin and shorting the futures, the delta between the two can be locked in as a risk-free trade.
This is exactly what hedge funds are doing, as evident from their massive short position in Bitcoin in the recent month, which
“is a big endorsement for Bitcoin, as it shows that Bitcoin is becoming a serious asset class.”
Currently, there are more than $1 billion tied-up in hedge fund arbitrage shorts, which is growing fast. This means, “all these shorts require long-spot positions to hedge risk, so more and more Bitcoin supply is being sucked out of the market just to maintain these short positions.”
Overall, Bitcoin is “skewed bullish” in all timeframes, but still, it will be a daily close above $60k that will provide a good technical breakout buy signal for the short term, said Edwards.
“Historically, April is the second-best month for Bitcoin returns. With an average return of over 20%, the 70Ks are on the cards.”
While Bitcoin’s exponential rally is showing some healthy signs of consolidation over the last few months, the underlying network is strong as ever. Addresses with non-zero balance are hitting new all-time highs, and the number of active addresses is also near its ATH.
The fact that in recent weeks, over 3-year-old coins have started moving indicates that we are about halfway through this bull market.