PRO Friday Roundup 4/14/23
A breakdown of the latest in the bitcoin futures market and consumer inflation expectations.
Relevant Past Articles:
State of the Futures Market
As bitcoin futures markets continue to evolve over time, the perpetual futures market still plays the dominant role. Although not as extreme as what we saw back in 2020 and 2021, the periods of deep negative perpetual funding rates have proved to be local bottom areas for the bitcoin price as shorts pile on during times of fear and excess selling. So far, we’ve seen these dynamics play out both around $15,000 and on the recent price retest just below $20,000. Both occasions acted as catalysts for taking the price higher in an increasingly illiquid market over the last few months.
Below are daily and hourly comparisons where this dynamic is much easier to see on the hourly chart. What’s to look out for now is if we’re to see another period of deep negative perps funding in this trend higher or if the market is led by spot selling on any retrace (and lack of negative perps funding) back towards the 200 WMA, now around $25,700.
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From the rise in open interest and shift in the mean funding rate since the start of the year, there’s been a bullish momentum flip and sentiment across the board as overall speculation has picked up. Yet, this has come at a time where growth in the perps market has far outpaced growth or activity in the traditional calendar bitcoin futures market (i.e. products like what the CME offers).
Inflation Expectations Come In Hot
As the first quarter came to an end, the US economy experienced a gradual moderation due to high inflation and borrowing costs, which constrained household spending and manufacturing activity. March retail sales witnessed their most significant decline in four months, mainly due to decreased gas station receipts and a slowdown at auto dealers. Factory output also fell more than anticipated, while inflation pressures have only started to slowly dissipate. Despite these challenges, the Federal Reserve is expected to opt for another quarter-point rate hike at its next meeting, with some policymakers open to a pause.
The University of Michigan's consumer survey showed that year-ahead inflation expectations increased significantly in early April, largely driven by higher gas prices. Consumers now anticipate a 4.6% annual price increase over the next year, up from 3.6% in March. However, expectations for the next five to 10 years remain at 2.9% for the fifth consecutive month. The labor market continues to be a bright spot, with low unemployment and strong job additions, but slowing demand for workers and rising layoffs could limit further wage growth.