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Fundamentals, FOMO, and Futures

Bitcoin Suisse

Contributor:
Bitcoin Suisse
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Market Update

3rd June, 2019

Trading near to USD 8,500 at the time of writing BTC has already once tested USD 9,000 on May 30th. The cost of doing so was a sell off (off a cliff actually) and within hours BTC had traded as low as USD 8,000. A reminder of where the fear of missing out (FOMO) can take you when price is bolstered by analyst after analyst barking at a 10k price target for BTC for the past 2 months with little justification as to why.   

The Bitcoin network fundamentals have seen only modest improvements with a gradual increase in transaction count per block over the past 12 months. Data from New York-based blockchain researcher Chainalysis Inc. show that only 1.3% of economic transactions came from merchants in the first four months of 2019.[i]

However, mining difficulty of the network is currently at it’s all time high meaning the network has never been more secure. In Layman’s terms, mining difficulty refers to the ease which miners are able to solve the cryptographic equation required to “mine” a new block on the bitcoin network. Since launch over 10 years ago the Bitcoin network has never suffered a data breach.

Source [ii] : Yellow: number of miners in the network increases the difficulty of hash rate (as more computational guesses need to be made per second to mine a block). Blue: Transaction per block as representation of network activity. Grey: BTC price


Technology doesn’t have to be used as intended, focusing on decorrelation and the store of value aspects of Bitcoin the Financial Times [iii] reported that BTC is proving a better store of value than the Argentine Peso. Had an Argentine purchased BTC at the height of the 2017 bubble, he/she would’ve been better off than holding cash with the central bank.

We made note in May’s Market Briefing of price action related to the Trump/China trade war. The below chart supports our commentary of potential flows into BTC by Chinese investors seeking a haven away from the Yuan facing ongoing pressure by US tariffs.

Purple: CNYUSD

Measuring institutional sentiment last Friday saw the CME Bitcoin Futures set an all time high of 5,190 contracts (circa $220m) of open interest. Although CME Futures are cash settled around 50% are due to be rolled over today (Monday), a majority rolling over into the next contract would evidence further commitment to BTC bulls.

Finally, we hope you will make good use of the BTC currency symbol added to Microsoft Excel last week.

Written by Richard Wynn, Institutional Services and Sandro Huwyler, Trade Desk of Bitcoin Suisse AG


[i] https://www.ft.com/content/44bfb5b8-7d4d-11e9-81d2-f785092ab560

[ii] https://tradeblock.com/bitcoin/historical/1d-p-txs_blk_avg-00071-diff_avg-00071

[iii ] https://www.ft.com/content/44bfb5b8-7d4d-11e9-81d2-f785092ab560

Disclosure: Bitcoin Suisse

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Disclosure: Bitcoin Futures

TRADING IN BITCOIN FUTURES IS ESPECIALLY RISKY AND IS ONLY FOR CLIENTS WITH A HIGH RISK TOLERANCE AND THE FINANCIAL ABILITY TO SUSTAIN LOSSES. More information about the risk of trading Bitcoin products can be found on the IBKR website. If you’re new to bitcoin, or futures in general, download The Beginners Guide to Bitcoin Futures.

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