Cryptoassets Surge as Bitcoin Adoption Grows and ETF Options Gain Approval

André Dragosch, PhD Director, Head of Research — Europe

Contenuto

Chart of the Week
Performance
Sentiment
Fund Flows
On-Chain
Futures, Options & Perpetuals
Bottom Line
Appendix

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Last week, cryptoassets outperformed traditional assets by a wide margin due to improving risk appetite. Risk appetite was buoyed by many developments, such as the increasing corporate treasury adoption of Bitcoin and the approval of US spot Bitcoin ETF options by the SEC.
Our in-house “Cryptoasset Sentiment Index” has continued to recover and currently signals a neutral level of sentiment.
At the time of writing, around 323k BTC (~18.5 bn USD) in bitcoin are already tied into BTC option contracts across different option exchanges such as Deribit or CME.

Chart of the Week

Performance

Last week, cryptoassets outperformed traditional assets by a wide margin due to improving risk appetite. Risk appetite was buoyed by many developments, such as the increasing corporate treasury adoption of Bitcoin and the approval of US spot Bitcoin ETF options by the SEC.

More specifically, Microstrategy (MSTR) bought an additional 7,420 BTC (~458.2 mn USD) last week which is following purchases of 18,300 BTC the week before. In addition, MSTR has announced 2 offerings of convertible senior notes with a notional value of almost 2 bn USD which implies that MSTR could continue buying even more bitcoins over the coming weeks.

Besides, another company called Cathera Bitcoin Inc. has adopted a Bitcoin treasury strategy with the primary goal of accumulating bitcoin on behalf of shareholders, according to their press release.

55 publicly traded worldwide have already announced bitcoin holdings according to the latest data provided by bitcointreasuries.net.

Another important development last week was the approval of options on Bitcoin ETFs by the SEC. Although only options on BlackRock's iShares Bitcoin Trust ETF (IBIT) have been approved so far, other option approvals on different Bitcoin ETFs will most likely follow over the coming weeks.

At the time of writing, around 323k BTC (~18.5 bn USD) in bitcoin are already tied into BTC option contracts across different option exchanges such as Deribit or CME (Chart-of-the-Week).

Options give investors the right to either buy or sell the underlying asset at a predetermined price in the future.

ETF options mean that long investors can hedge their positions via protective puts but also do more sophisticated investment strategies such as covered call writing by being long the underlying ETF and shorting/writing the ETF call, thereby additionally earning the options premium.

There are already existing futures based ETFs that have been engaging in Bitcoin futures covered call writing strategies based on the BITO ETF where ETF options are already existing, which is why the overall effect of this approval still remains somewhat uncertain.

However, it is generally expected that this approval could have a very positive self-reinforcing effect on the price of Bitcoin due to a phenomenon called “gamma squeeze”.

The gamma of options is a metric that measures how much an option's price moves in response to changes in the underlying asset's price for each 1 USD change in the underlying asset's price.

Market makers, who are required to maintain a net market-neutral exposure, wind themselves on the other side of the trade, holding substantial quantities of short call positions, also known as short gamma exposure, when investors purchase a lot of call options in anticipation of a price rally. Because they have a duty to supply the underlying asset to the buyer of the call option, they buy the underlying asset when the market rises.

The spot price is pressured upward by the hedging activity, leading to a strong surge similar to the one that occurred in the shares of the US video game retailer GameStop in 2021.

This dynamic could be exacerbated by the fact that Bitcoin is significantly more supply-constrained than traditional company shares.

Meanwhile, Trump's visit of a known Bitcoin hangout during a campaign rally in New York where the presidential candidate bought burgers with bitcoin has also supported risk appetite. Trump is the first publicly-known (ex-)president to ever transact in bitcoin. However, latest betting odds imply a significant lead of Harris over Trump. At the time of writing, betting markets are pricing the odds of a Harris win at 53.7% vs 45.0% for Trump.

Geopolitical risks have continued to be high across the Middle East, with the latest escalation between Israel and Lebanaon. In this context, we just wanted to highlight that Bitcoin might act as a reliable hedge against geopolitical risks, as demonstrated in one of our recent Crypto Market Espresso reports.

In general, among the top 10 crypto assets, Avalanche, Ethereum, and Solana were the relative outperformers.

Overall, altcoin outperformance vis-à-vis Bitcoin has picked up compared to last week albeit from low levels, with around 45% of our tracked altcoins managing to outperform Bitcoin on a weekly basis. This is also consistent with the abovementioned outperformance of Ethereum vis-à-vis Bitcoin by approximately 370 basis points last week.

Sentiment

Our in-house “Cryptoasset Sentiment Index” has continued to recover and currently signals a neutral level of sentiment.

At the moment, 10 out of 15 indicators are above their short-term trend.

Last week, there were significant reversals to the upside in BTC exchange flows and the BTC short-term holder net unrealized profit/loss ratio (STH-NUPL).

The Crypto Fear & Greed Index currently signals a “Neutral” level of sentiment as of this morning.

Performance dispersion among cryptoassets still remains at very low levels. This means that altcoins are still very much correlated with the performance of Bitcoin.

Altcoin outperformance vis-à-vis Bitcoin has picked up compared to last week albeit from low levels, with around 45% of our tracked altcoins managing to outperform Bitcoin on a weekly basis. This is also consistent with the abovementioned outperformance of Ethereum vis-à-vis Bitcoin last week.

In general, increasing (decreasing) altcoin outperformance tends to be a sign of increasing (decreasing) risk appetite within cryptoasset markets and the latest pick-up in altcoin outperformance could signal an increasing risk appetite at the moment.

Meanwhile, sentiment in traditional financial markets as measured by our in-house measure of Cross Asset Risk Appetite (CARA) also continued to recover and currently signals a neutral sentiment in traditional financial markets as well.

Fund Flows

Fund flows into global crypto ETPs have decelerated somewhat but still remained positive last week.

Global crypto ETPs saw around +293.2 mn USD in net inflows across all types of cryptoassets which shows that net inflows have decelerated compared to prior week's +472.5 mn USD in net inflows.

Global Bitcoin ETPs saw net inflows totalling +266.5 mn USD last week, of which +368.6 mn USD in net inflows were related to US spot Bitcoin ETFs alone. US spot Bitcoin ETF net inflows have slightly accelerated compared to the previous week.

The ETC Group Physical Bitcoin ETP (BTCE) showed some net outflows equivalent to -13.0 mn USD and the ETC Group Core Bitcoin ETP (BTC1) experienced minor net inflows (+0.3 mn USD).

Outflows from the Grayscale Bitcoin Trust (GBTC) slightly accelerated with around -28.9 mn USD last week. iShares Bitcoin Trust (IBIT) experienced a net inflow of +15.8 mn USD after net outflows of -9.1 mn USD the week before.

Meanwhile, globalEthereumETPs also continued to see net outflows of around -29.9 mn USD which also accelerated somewhat compared to the week prior. US Ethereum spot ETFs saw around -26.3 mn USD in net outflows in aggregate. However, this was again mostly related to continuing outflows from the Grayscale Ethereum Trust (ETHE) which experienced -46 mn USD in net outflows last week.

Neither the ETC Group Physical Ethereum ETP (ZETH) nor the ETC Group Ethereum Staking ETP (ET32) saw net creations or redemptions last week (+/- 0 mn USD).

Altcoin ETPs ex Ethereum continued to see slightly positive net flows of around +5.8 mn USD last week.

Besides, Thematic & basket crypto ETPs even saw an acceleration in net inflows with around +50.8 mn USD last week. The ETC Group MSCI Digital Assets Select 20 ETP (DA20) saw positive net inflows last week (+0.6 mn USD).

Meanwhile, global crypto hedge funds maintained their slight underweight to Bitcoin last week. The 20-days rolling beta of global crypto hedge funds' performance to Bitcoin was unchanged at around 0.91 per yesterday's close.

On-Chain Data

In general, Bitcoin on-chain metrics have continued to improve last week.

For instance, Bitcoin spot intraday net selling volumes on exchanges have gradually flipped with a slight overhang of buying volumes over the past week.

Over the 7 days, net buying volumes across BTC spot exchanges amounted to around +21.2 mn USD, compared to around -127 mn USD the week prior. This is also consistent with the recent recovery in prices.

A very positive development is the fact that whales have continued to accumulate bitcoins. More specifically, BTC whales have transferred 9,836 BTC off exchanges last week on a net basis. Whales are defined as network entities that control at least 1,000 BTC.

As a result, BTC on-exchange balances have continued to drift lower a 3-months low according to Glassnode data.

What is more is that Glassnode's metrics of “liquid” and “highly liquid” bitcoin supply have decisively decreased to a new year-to-date low, signalling that investors are continuing to accumulate bitcoins and that the supply deficit emanating from the Bitcoin halving is indeed intensifying.

As far as Ethereum is concerned, the ETH/BTC performance ratio has stabilised recently and reversed to the upside from its recent 3.5-year low. In a recent report, Bitwise's CIO Matt Hougan has highlighted that investor sentiment was already very bearish and that Ethereum is poised for a contrarian comeback.

In fact, recent developments on ETH Layer 2s such as Base continue to surprise positively to the upside. For instance, Base's daily active users have reached a new all-time high of around 1.6 mn according to data provided by Artemis.

That being said, overall ETH exchange balances continued to drift up last week still signalling an increase in selling pressure. However, overall ETH exchange balances still remain close to their multi-year lows according to Glassnode data.

Futures, Options & Perpetuals

Last week, derivatives traders continued to increase their exposure to bitcoin futures and perpetuals.

More specifically, both BTC futures and perpetual open interest increased by around +11k BTC and +1k BTC, respectively, amid increasing prices. Meanwhile, short liquidations in Bitcoin futures continued to be elevated, which also supported the most recent price advances.

Meanwhile, BTC perpetual funding rates have remained positive throughout last week. This implies that the market has started to develop a long bias more recently.

When the funding rate is positive (negative), long (short) positions periodically pay short (long) positions. A positive funding rate tends to be a sign of bullish sentiment in perpetual futures markets.

However, the BTC 3-months annualised basis still continued to decline slightly last week and is currently around 6.9% p.a. However, it had temporarily reached the lowest level year-to-date on Tuesday last week.

Besides, BTC option open interest increased only slightly last week. Meanwhile, the put-call open interest ratio declined, which implies a relative build-up in BTC calls. This also signals a gradual return in risk appetite. On the bright side, this implies that there is currently no euphoria in BTC futures markets whatsoever, implying that there is still potentially significant upside.

The 1-month 25-delta skews for BTC drifted slightly lower last week but still remains positive, suggesting an elevated relative demand for put options.

Furthermore, BTC option implied volatilities also continued to drift lower amid the reversal in prices. At the time of writing, implied volatilities of 1-month ATM Bitcoin options are currently at around 49.8% p.a.

Bottom Line

Last week, cryptoassets outperformed traditional assets by a wide margin due to improving risk appetite. Risk appetite was buoyed by many developments, such as the increasing corporate treasury adoption of Bitcoin and the approval of US spot Bitcoin ETF options by the SEC.
Our in-house “Cryptoasset Sentiment Index” has continued to recover and currently signals a neutral level of sentiment.
At the time of writing, around 323k BTC (~18.5 bn USD) in bitcoin are already tied into BTC option contracts across different option exchanges such as Deribit or CME.

Appendix

Informazioni Importanti

Le opinioni espresse rappresentano una valutazione del contesto di mercato in un determinato momento e non costituiscono una previsione di eventi futuri né una garanzia di risultati futuri. Sono soggette a ulteriori discussioni, integrazioni e modifiche.

Le informazioni contenute nel presente documento non sono intese a fornire, né devono essere considerate, consulenza contabile, legale o fiscale, né raccomandazioni di investimento.

Nulla in questa comunicazione deve essere interpretato come una raccomandazione, un’approvazione o un incentivo a intraprendere attività di investimento. Si invita il lettore a richiedere, ove opportuno, una consulenza legale, fiscale o finanziaria indipendente.

Per ulteriori informazioni sul contenuto di questa ricerca, si prega di contattare europe@bitwiseinvestments.com.

Informazioni su Bitwise

Bitwise è uno dei principali gestori patrimoniali specializzati in criptoasset a livello globale. Dal 2017, Bitwise collabora con migliaia di consulenti finanziari, family office e investitori istituzionali in tutto il mondo per favorire la comprensione e l’accesso alle opportunità offerte dai criptoasset. La società vanta una consolidata esperienza nella gestione di un’ampia gamma di soluzioni delta-one, indicizzate e attive, tra cui ETP, ETF, mandati di gestione individuale, fondi privati e strategie hedge fund, negli Stati Uniti e in Europa.

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