Crypto Corner: Week Summary 28 June 2021
The Bitcoin Bulls and bears are still fighting in the $30,000-40,000 range and have been fighting there since Mid-May. The trench was dug recently near the $33,000 level. Bearish put holders are trying to drive the price below $32,000, and the bull holders are struggling to drive it above $34,000 where out-of-the-money calls are piling up. The incremental profit and loss, subsequent to a $2,000 rally or a $2,000 correction, is worth fighting for. Even though today’s fight ended in a draw as the options expiration price was near the $33,500 level, the bulls’ strategic advantage has certainly been growing in the past few weeks.
Calls and Puts open interest: the battle for the $33,000 level
The put/call ratio is shifting in favour of the bulls: the ratio on Deribit has already been falling since mid-May, and it reached its low on Thursday at 0.61. Levels below 0.61 were observed last only on January 1st.
It is also worth noting that Ether’s put/call ratio dropped significantly two weeks ago: it is now at 0.6, which is the lowest level in over a year. Ether outperformed the first cryptocurrency this week by nearly 8%, but the price is merely catching up with Bitcoin. It is also supported by very strong on-chain metrics: Ethereum’s unique active addresses per day have been above Bitcoin’s for 11 consecutive days: it is the longest period on record.
Bitcoin’s dominance was up by nearly 5% two weeks ago after El Salvador’s president, Nayib Bukele, followed up on his country’s Bicoin legal tender on June 9th. Bukele announced then that his government would give every citizen 30$ in Bitcoin, a significant offer in a country where more than 20% of the population is estimated to live with less than a few dollars per day. The total amount to be distributed is estimated at 3,450 Bitcoins at current levels. A priori, getting the 30$ gift might turn out to be difficult, because it requires the citizen to sign up to an e-wallet using face recognition. But this is less of a problem for El Salvador where Salvadorans are leading adopters of mobile technology. Furthermore El Salvador has yet to build the required infrastructure that would definitely introduce Bitcoin into its citizens’ everyday life. Athena Bitcoin is helping the country in these regards, aiming for the installation of ‘1,500 cryptocurrency ATMs’ according to Reuters. Athena had already installed its first ATM in the now famous beach of El Zonte, where a proof of concept confirmed the project’s feasibility. The news boosted Bitcoin’s price despite the IMF’s concerns and potential retributions. The IMF could be conditioning its $1 billion financing to the country backpedaling on adopting the main cryptocurrency. Meanwhile, the president is already planning on setting up miners using clean geothermal energy, heat sourced from volcanic activity.
Back to the derivatives market, we’ve established that it is slowly turning bullish, and we could actually expect a ‘short squeeze’. A short squeeze happens when the start of a market reversal forces bears to close their short positions, contributing to a price rally. Analysts pointed out that the‘funding rate [of Bitcoin future contracts] has now been negative for 11 straight days’, which hasn’t happened since January. In other words, ‘Shorts [have been] paying longs to keep their positions open’ for 11 days. As bulls keep on defending the $30,000 level, and bears continue to open new short positions, eventually, the shorts could break ranks, and leave the door open to a January-like rally.
Historical funding rates: source - bybt. Fundamentals are still showing that institutions are holding since mid-May: the Bitcoin balance of the first institutional exchange, Coinbase, has reportedly flattened, as well as the number of whales holding above 1,000 BTCs. But the Fear of Missing Out (FOMO) vanished and these institutions are not looking to buy more.
On the other hand, the first retail exchange, Binance, is registering negative netflows: 13,330 BTCs have already been withdrawn from the platform since Saturday, and the trend is not abating. The UK’s authorities (the FCA) announced on the 26th that the exchange is not allowed to undertake any regulated activity in the country until further notice. The exchange is also withdrawing from Ontario in Canada, and it received warnings from the Japanese and German authorities.
The institutions’ continued interest is key to holding the $30,000 level, and open the door to a potential short squeeze that could send the Bitcoin price back to $60,000. The alternative bearish scenario, supported by some technical analysts, could send the price below the $20,000 mark.