Bitcoin holds firm and Futures don’t like it one bit
Bakkt and CME are in agreement.
The digital currency markets are unlike any other. Where other markets crave a period of stability for their investments to hold firm and gain relative ground, those in the Bitcoin market crave volatility.
One of, if not the most appealing factor of the Bitcoin market, is its inherent volatility. What other financial asset begins the year at $3,300, begins the second quarter with a 17 percent price gain, reaches $13,800 by the six-month mark, breaks down to $10,000 three months later, enters a ‘Death Cross,’ and records a 40 percent price pump the very next day? Only Bitcoin.
Fluctuation in any market appeals to one investment product more than any other – the Futures market. And boy, are Bitcoin Futures having a blast.
The two main avenues of BTC Futures, one cash-settled and the other physically delivered in the CME Group and Bakkt, have had an interesting few weeks, causing a shift in Futures volume. However, now it looks like their performance has dropped owing to the relative and unlikely calm in Bitcoin’s price.
Earlier this week, the price of Bitcoin fell from $9,070 to $8,650 in less than 8 hours, following which it was stuck in the $8,600 to $8,800 range, causing a simultaneous drop in volume on Bakkt and CME.
Bakkt has been riding a wave of success over the past few days, recording rocketing volumes on the back of institutional returns and price volatility. On 8 November, the volume on ICE’s digital assets platform reached $15.6 million as the spot price of the underlying asset dropped below $9,000 for the first time since the close of October.
Not only was the 8 November volume an ATH by over $5 million for the platform, the next trading day, November 11, saw a volume of $14.3 million as the price dropped once again. On 12 November, a third straight day of over $10 million in volume was recorded as investors were expecting another price drop which didn’t realize.
This plateau was further extended on 13 November as the aforementioned price range remained unbroken and institutions did not expect volatility to lull them into trading the Futures contracts. Hence, the volume on Bakkt dropped down to a dismal $5.3 million, its lowest point since the beginning of the month. The contracts traded on 13 November were 601, down by 59 percent from the previous day.
It should be noted here that Bitcoin’s massive rise, that it is still hanging onto currently, came about due to an external comment, rather than confirmed adoption or a positive fundamental indicator. On 23 October, Xi Jinping, the President of China, stated that blockchain is a ‘core technology’ for China’s future and since then, the Asian giant has begun heavily disseminating pro-blockchain information.
This ‘Blockchain, not Bitcoin’ news contributed to a massive increase in the crypto’s price, causing a move from $7,400 to over $10,200 in less than a day.
On the other end of the Futures stick, the CME Group has also been seeing declining volumes, more so than Bakkt. The CME Group recorded a third straight day of decreasing volume on 13 November 13 only 2,163 contracts traded. To put that figure into perspective, 8 November saw 5,824 contracts traded and 11-12 November saw 3,850 and 3,684 contracts traded, respectively.
The aforementioned CME figures are significantly below their average contracts traded per day, which from a YTD scale [in August 2019] was around 7,237 contracts. Over the past month, only two days saw the contracts per day surge over the average, 23 October and 25 October, around the same time Xi Jinping’s blockchain comment came.
Futures are traded on the expectation of volatility, even more so in a market like Bitcoin and cryptocurrencies. Over the past few days, the price has been holding strong within a locked range, resulting in the volumes on Bakkt and CME dropping. With volume down, investors are eagerly holding onto their contracts [in CME’s case] and their Bitcoin [in Bakkt’s case], hoping for a big price move.
From the looks of it, if Bitcoin makes a sharp move, watch out for the Futures volume.