25k BTC ($1.8B) flowed into the spot ETFs last week, and yet Bitcoin still hasn't cracked to new ATHs. I suspect much of this inflow volume is associated with the cash and carry trade via CME futures.
Haha, as with all things in markets, it ain't all that easy. The ETFs are still a huge influence on the market, but it isn't as straight forward as inflows == NGU. The exact same way exchange balances down != NGU. Everything is some shade of grey!
Hi James, very illuminating, again…..! You are living up to your tagline: ‘your BTC personal trainer’…….! I have a few follow-up questions.
- is it correct that CME futures are USD cash-backed only and that margin requirement is 50%? Is that the reason you said that these traders will not get liquidated? In other words, no short squeeze to expect here?
- what overall percentage of BTC futures is backed by BTC collateral and what is generally the kind of margin requirement and leverage that is used for these futures. I hear about insane leverages of 100 x 1, is that true? Is it correct that the very steep rises (and falls) of BTC are often driven by BTC-backed futures liquidations? Short squeezes more likely here?
1) Im not 100% sure the collateral requirements for CME, but they are cash instruments. I doubt these entities are likely to be margin called, and certainly not in the same way we came to learn in 2021 in perpetual swap Bitcoin futures markets. The cash and carry trade would not have short squeeze risk imho, only if the position was poorly managed.
2) Currently around 35-40% of futures are backed by coin-margin, which is significantly less than the 80%+ we saw back in 2021. This removes a lot of convexity to the downside from the market.
Satisfied subscriber here. In order to put this carry trade on, the trader must first buy spot (or ETF shares). Doesn't this represent real demand, even though it's hedged with a futures contract? Real world bitcoin is being hedged with paper bitcoin contracts. Seems like the demand for spot would force some NgU action. What am I missing?
Yes it does represent demand for spot! This is real, however it is also somewhat balanced by short pressure in futures. This pushes futures premiums down, which can then result in other actors not getting their yield they need and that results in an unwind of other spot positions. It is a complex interplay between the two markets, but this is also what keeps them connected.
Thanks for a.) the explanation and b.) the heavy lifting of responding to everyone here and on X too. Just as much education in the conversation when you're in there mixing it up, so it's much appreciated.
What I'm wondering is whether this trade slowly burns the MVRV ratio lower like a fuse (or in other words steadily presses the Realized Cap upward against the ceiling of a stable but choppy price) since coins are churning around in the mechanics of the cash and carry and getting repriced higher as a result. From looking at the charts for both metrics they appear to be heading in those respective directions, albeit slowly.
If that is the case, would it follow that once the MVRV fuse burns low enough/Realized Cap upward pressure gets close enough to market cap "ceiling," there's enough perceived value for us to push into a new range? And potentially start chopping again, but at a higher plateau?
Great question. I think generally speaking, MVRV is compressing as Bitcoin gets larger, slower, and harder to move (less extremes, more normal). Given futures and C&C trades are a part of this growing up and a feature that adds liquidity and dampens volatility, you could argue these are linked. So yes in a way, but not necessarily the driving force.
Teacher (trainer) ,Thank You for the timely explanation and all of the newsletters you put out. POW is slowly increasing my understanding. I no longer just look at the on-chain metrics as a "dummy" light. And, it's a wonderful thing.
Well, there go the days of getting excited over ETF inflows. 😢
Haha, as with all things in markets, it ain't all that easy. The ETFs are still a huge influence on the market, but it isn't as straight forward as inflows == NGU. The exact same way exchange balances down != NGU. Everything is some shade of grey!
Hi James, very illuminating, again…..! You are living up to your tagline: ‘your BTC personal trainer’…….! I have a few follow-up questions.
- is it correct that CME futures are USD cash-backed only and that margin requirement is 50%? Is that the reason you said that these traders will not get liquidated? In other words, no short squeeze to expect here?
- what overall percentage of BTC futures is backed by BTC collateral and what is generally the kind of margin requirement and leverage that is used for these futures. I hear about insane leverages of 100 x 1, is that true? Is it correct that the very steep rises (and falls) of BTC are often driven by BTC-backed futures liquidations? Short squeezes more likely here?
Thanks in advance.
Thanks Pim, glad to hear that.
1) Im not 100% sure the collateral requirements for CME, but they are cash instruments. I doubt these entities are likely to be margin called, and certainly not in the same way we came to learn in 2021 in perpetual swap Bitcoin futures markets. The cash and carry trade would not have short squeeze risk imho, only if the position was poorly managed.
2) Currently around 35-40% of futures are backed by coin-margin, which is significantly less than the 80%+ we saw back in 2021. This removes a lot of convexity to the downside from the market.
Satisfied subscriber here. In order to put this carry trade on, the trader must first buy spot (or ETF shares). Doesn't this represent real demand, even though it's hedged with a futures contract? Real world bitcoin is being hedged with paper bitcoin contracts. Seems like the demand for spot would force some NgU action. What am I missing?
Yes it does represent demand for spot! This is real, however it is also somewhat balanced by short pressure in futures. This pushes futures premiums down, which can then result in other actors not getting their yield they need and that results in an unwind of other spot positions. It is a complex interplay between the two markets, but this is also what keeps them connected.
Thanks for a.) the explanation and b.) the heavy lifting of responding to everyone here and on X too. Just as much education in the conversation when you're in there mixing it up, so it's much appreciated.
What I'm wondering is whether this trade slowly burns the MVRV ratio lower like a fuse (or in other words steadily presses the Realized Cap upward against the ceiling of a stable but choppy price) since coins are churning around in the mechanics of the cash and carry and getting repriced higher as a result. From looking at the charts for both metrics they appear to be heading in those respective directions, albeit slowly.
If that is the case, would it follow that once the MVRV fuse burns low enough/Realized Cap upward pressure gets close enough to market cap "ceiling," there's enough perceived value for us to push into a new range? And potentially start chopping again, but at a higher plateau?
Great question. I think generally speaking, MVRV is compressing as Bitcoin gets larger, slower, and harder to move (less extremes, more normal). Given futures and C&C trades are a part of this growing up and a feature that adds liquidity and dampens volatility, you could argue these are linked. So yes in a way, but not necessarily the driving force.
Teacher (trainer) ,Thank You for the timely explanation and all of the newsletters you put out. POW is slowly increasing my understanding. I no longer just look at the on-chain metrics as a "dummy" light. And, it's a wonderful thing.
Love to hear this, really great comment, and useful feedback for us. Cheers!
It looks like funds are exploiting btc buyers and yet hodling or even maintaining some small leveraged long positions might be better