Using Bitcoin Derivatives To Discern Speculation From True Momentum
We unpack recent developments in the bitcoin derivatives market, as well the dynamic between bitcoin and the legacy financial system and the potential for "decoupling" between the two systems.
Relevant Past Articles:
State Of The Derivatives Market
Today’s issue will cover some of the recent action in the bitcoin derivatives market, as well as touch on the evolving relationship between bitcoin and the legacy financial system.
The action in global capital markets has been intense over the last week, with massive volatility across currencies, more selling in bonds, and a brief bullish deviation for bitcoin, which excited the bulls.
As bitcoin pushed back above $20,000, there was some chatter of a potential decoupling, as bitcoin was up over 7% while U.S. equity markets were down approximately 4% over the last week. While we would certainly love to see a moment where bitcoin finds relief during an increasingly tumultuous environment in the legacy financial system, we remain skeptical on this outcome over the near future, as the data just doesn’t support it.
We cannot emphasize enough that the current trading environment for bitcoin is less about bitcoin itself and more about the dollar. As yields across maturities and currencies are soaring higher, the value of global assets is collapsing in tandem, which will subsequently lead to a day of reckoning where everything sells in tandem.
As we like to say it, the everything bubble is unwinding, as the asset sitting at the base of it all, the U.S. Treasury bond, continues to bleed.
Let’s return back to bitcoin for a moment. What was the period of outperformance from, and can we expect more of it soon?
The simple answer is that the type of buying that was occurring — long positions in the bitcoin futures market — is never one of sustainable nature.
The above post, referring to the surge of open interest in tandem with price action yesterday evening, was a plea to the celebratory bulls, that the spot market better start buying, or the bears will rear their ugly head.
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