First Mover Americas: Record Low Bitcoin Futures Premium on Binance Signals Capitulation, BITO Sees Inflows

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By Omkar Godbole

Bitcoin failed to beat a key price-resistance level early Wednesday amid mixed action in traditional markets and reports of the next round of peace talks between Ukraine and Russia.

The biggest cryptocurrency by market value reached daily highs at the descending 100-day moving average (MA) hurdle at $45,000 before retreating to $44,000, according to chart platform TradingView. The cryptocurrency was still up 28% from last Thursday’s one-month lows.

The total crypto market capitalization rose past $2 trillion, as alternative cryptocurrencies charted a more significant recovery rally alongside bitcoin’s bounce. Programmable blockchain Terra’s LUNA token rose to a two-month high of $96, taking the week-on-week gain to 92%.

The crypto recovery looked set to continue on increased demand from Russia and Ukraine and as inflation expectations surged and traditional markets priced out prospects of aggressive monetary tightening by central banks.

“Bitcoin is on a steady footing here, but we may meet increased resistance around $46,000 handle,” Matthew Dibb, COO and co-founder of Stack Funds, said. “Recent moves have shown evidence of the correlation between BTC and equities dropping; however, this is a crucial month for economic data that may hold some surprises.”

“We believe this may sustain in the near term given that there are new fund inflows for the month that must be allocated,” Dibb added.

While futures tied to the S&P 500 rose, European stocks dipped and the euro-U.S. dollar exchange rate slipped to its lowest since March 2020. Markets likely saw the European economy taking a relatively bigger hit from the Ukraine-Russia war and the West’s punitive sanctions on Moscow.

Gold took a bull breather while oil, industrial metals and grains were bid again, hinting at hotter inflation in coming months. Even so, money markets continued to scale back bets of monetary policy tightening by the Federal Reserve and the European Central Bank.

By Omkar Godbole

The annualized rolling three-month premium in bitcoin futures listed on crypto exchange Binance fell to record lows early this week, hinting at capitulation and market bottom.

“Binance’s 24-hour average basis [spread between futures and spot prices] reached a new all-time low on Monday of 1.17%, below the bottom 1.18% seen on July 21, 2021. This points towards a very pessimistic sentiment among leveraged traders and, yes – a sign of capitulation,” Vetle Lunde, market analyst at Arcane Research, told CoinDesk in a Twitter chat.

Offshore crypto trading platforms like Binance and Bybit offer relatively high leverage than the regulated Chicago Mercantile Exchange and are considered a proxy for retail leverage traders. While Binance offers 20x leverage, the CME offers 2-3x with much stricter margin requirements.

Capitulation refers to a situation when traders liquidate their loss-making positions during extended market declines in fear of incurring deeper drawdowns. It’s a sign of extreme pessimism and panic selling typically seen at the end of bear markets.

So, the record low Binance premium perhaps indicates that bitcoin’s bear run, which began at dizzy heights of $69,000 in mid-November, has run its course.

Supporting that conclusion is the relative optimism on Chicago Mercantile Exchange, which represents institutions and large traders.

The CME three-month rolling premium has stabilized in the 2% to 3% range since hitting lows under 1% in January, data provided by crypto derivatives research firm Skew show. Last week, the CME futures traded at a higher premium than those listed on Binance – the first such instance since March 2020.

“The fact that CME’s basis bottom coincided with BTC’s January bottom and has since grown suggests that smart money has a more positive outlook on the market onwards, compared to its peers,” Lunde noted.

Inflows into BITO

The relatively higher premium on the CME at least, in part, stems from increased inflows into ProShares’s bitcoin futures-based exchange-traded fund (ETF).

The fund’s total assets under management (AUM) rose from roughly 24,500 BTC to 27,500 BTC in the four weeks to mid-February before recently falling to 27,000 BTC, shown by Arcane Research. The ProShares bitcoin ETF was launched in October on the New York Stock Exchange under the ticker BITO.

“Strong inflows to the BITO ETF contribute to CME’s stable and subtle growing basis,” Lunde said.

The above chart shows the fund witnessed outflows early this year as bitcoin cratered on fears of faster Fed rate hikes. However, the trend has shifted to inflows since mid-January.

As of Feb. 24, ProShares’ AUM was up 74% on a year-to-date basis while the AUM of ARK, according to data tweeted by Bloomberg’s Eric Balchunas.

Futures-based ETFs are exposed to contango bleed and tend to underperform the underlying asset.