Crypto Winter May Be Thawing
Lead month (March) Cboe Bitcoin (USD) (XBT℠) futures challenged last week the 4000 level for the first time since early in January. Year-to-date, the high tick for XBT futures was 4095 (XBTF19 on January 8) and lows occurred on January 29 at 3305. March XBT futures reopened at 3680 on January 1 and are higher by about 6% YTD*.
In early February, XBT futures continued to plumb just above annual lows until February 8, when a breakout arguably began. Following a swift 10%-plus surge, the market consolidated before a fresh wave of buying pushed front month XBT futures up to 3990 on February 21. Thus far, XBT futures have been unable to breach the 4000 mark.
Despite two different double-digit moves, on a close-over-close basis (February 8 and February 19) volatility has been relatively muted in the crypto market in 2019. Since inception, the average peak-to-trough weekly range for lead month XBT futures has been 14.72%.
As has been pointed out in previous newsletters, bitcoin volatility diminished starting in April of 2018. The same weekly average high to low volatility figure since April of last year is 11.39%. By either measure, bitcoin is an unusually volatile product.
It’s also important to note that volatility tends to mean revert. However, in 2019, the average weekly range for front month XBT futures is running “only” 7.71%. The week ending February 15 was the second narrowest range for XBT futures since inception (3.69%).
If we look at monthly volatility, January 2019 was the second least volatile month for XBT futures. The average weekly high/low range was “only” 8.07%. Thus far, February’s lead month volatility has been nearly identical to last month’s (8.14%). Recent price action has been somewhat reminiscent of the period between mid-September and early November of last year. That narrow trading range resolved meaningfully lower after breaking 6000 on November 13.
Bitcoin bulls point to the recent push above the 50-day simple moving average (SMA) as further evidence that the “crypto winter” may be thawing. The last stretch where bitcoin (BTC-USD) settled above the 50-day SMA was on Labor Day (September 3, 2018). Prior to that, it was in early August and mid-May of 2018. Technical traders may key in on the 4500 area to see if bitcoin can break through the 100-day SMA, which has capped nearly every advance for the last year.
There appears to possibly be a burgeoning institutional appetite for bitcoin futures. According to CryptoCompare research on U.S. markets “futures products from traditionally regulated exchanges (Cboe® and CME) represented 11.7% of the Bitcoin to USD futures market in January, up from 6.36% in December.”
In broader crypto news, there have been rumors that Bitmain, the China-based crypto mining giant, have been forced to lay off staff and liquidate the majority of their holdings due to adverse market conditions. Bitmain, which had filed for an IPO last year, has rebuffed the negative media reports.
Finally, Litecoin (LTC) which some consider “silver” to Bitcoin’s “gold”, has vaulted back into the top 5 in terms of market cap for cryptos. LTC ripped about 120% from December lows to recent highs. The specs on Litecoin are very similar to Bitcoin and the rumors that Litecoin block reward will be halved in early August of 2019. In a shift from the 2018 narrative where Bitcoin consistently outperformed, some of the altcoins like Ether and Litecoin have led the way in early 2019.
*All data as of Thursday February 21st 5 PM CST
CME set to record highest bitcoin trading volume in months VS
CBOE – tradeblock.com
The tradeblock.com reported in its blog that, The CME Group, which saw bitcoin futures trading volume plunge to a yearly low in December, has seen a rebound as February is on pace to be one of its highest volume periods since November.
Bitcoin futures trading volume at the CME were exceptionally elevated on certain days over the month of February. On Feb. 8th and Feb. 19th, the CME recorded $186 million and $360 million ( a daily record) in notional trading volume.
Despite the record setting intraday volume, over the entire month of February, volumes are not expected to set a record–likely underperforming November’s monthly volume which saw heightened trading activity amidst elevated volatility in bitcoin prices.
Despite the near term uptick in CME volume, the Cboe, conversely, is on pace to record a year-over-year low in bitcoin futures trading volume. In the chart below, we tracked bitcoin notional trading volume at both the CME and Cboe over time.