Looking at the Futures - June 18, 2020

Going nowhere...

There is this saying that the longer an asset trades in a range the bigger the move when a breakout happens. Well if that’s the case then Bitcoin should have a pretty big move incoming…


Looking at the Futures is a weekly newsletter where we are making sense of the Bitcoin derivatives market. Emphasis is put on the CME products as they dominate the field for institutional investors. But we’ll occasionally look at other venues too.

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Indeed Bitcoin has been stuck in the channel between $9,000 and $10,000 roughly since the beginning of May. Sure we tested the upper and lower bounds of this range a few times but nothing came out of it.

Now if you just own your coins then that’s no big deal. Just sit on it, continue to stack sats and wait for time to do its thing. But if you have a bunch of derivative positions then timing is somewhat important.

On the CME futures we are seeing some signs that the bulls might be getting tired waiting for a breakout above $10,000. The average daily traded volume is trending down which is not surprising since it follows price volatility. But at the same time open interest is also trending down.

The June contract expires at the end of next week so we’ll see how it goes.

However time is really of the essence on the options market for all those bull call spreads that have been betting on a breakout on the upside.

The bulk of them is going to lose money unless somehow Bitcoin manages to move to about $12,000. That’s a +26% move in a week. We have seen crazier things in Bitcoin but it doesn’t look so good for those June contracts.

To be fair the same traders have already taken similar bullish positions on the July contract. So they have one more chance to win something. But for now there has been a pause in the introduction of new positions. Sure there are some puts and calls added here and there but nothing like the kind of volumes of the past few weeks. 

Certainly there is no appetite for putting down new bull spreads for now.

We are down to 31 calls for every 1 put. It was up to 57:1 until recently.

As of June 09 the composition of the CME market looks kinda stable. Let’s see what we have:

  • The smart money turned very much net short in the past couple of weeks. Nothing has changed.

  • Retail traders are not as bullish following the v-shape recovery but still very much net long.

So that’s it, Bitcoin is going nowhere. But is it surprising? I don’t think so. 

Look, we just had a massive market crash, including a -40% drop in one day. Followed by a 100% recovery in under two months.

If you look at the net positions of the traders during that period you can see that retail went all time high net bullish at the same time as the smart money reversed their all time high net short position. 

No wonder the market is running out of steam and taking a break before clearing the big psychological level that is $10,000. It will happen, just give it some time.

Let me remind you that for the year Bitcoin is already up 36%…

We are past the halving though, so I understand that there are strong expectations. The question that is on everyone’s mind: is 2020 the new 2017?

Maybe.

Take a look at the distribution of Bitcoin’s daily return broken down by year. One thing that stands out for 2017 is that it was  a pretty volatile year. So far 2020 doesn’t look so bad either… but I’ll let you be the judge of that.

See for yourself…

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