Crypto market in cautious state as Bitcoin ETF hopefuls wait on SEC decision

Happy Friday!

Crypto markets are full of positive indicators at the moment, but we’re currently in a market downturn, say Bitfinex analysts. In the words of Noelle Acheson, author of the Crypto is Macro Now newsletter: “Markets are weird, Bitcoin especially.”

Let’s dig in!

Market malaise

Crypto prices have fallen significantly over the past week, as investor optimism is being overshadowed by concerns, analysts say.

“The premium on Bitcoin futures listed on CME rose to 4.8%,” Bitfinex analysts told DL News via email. Offshore exchange’s premiums also surged, they said.

This is known as contango, basically the future price of Bitcoin is trading above the current spot price.

While this is a relatively normal situation, it indicates more institutional participation.

“The net result of these factors could lead to a conclusion that the market is reflecting a cautiously optimistic market sentiment,” Bitfinex analysts said.

Investor caution might be linked to large outflows. Over $500 million left major Bitcoin funds, according to the crypto exchange’s analysts, this “potentially triggered Bitcoin’s price drop, revealing underlying market concerns.”

We are currently in a market downturn, Bitfinex analysts said, despite prices bouncing at the beginning of the month.

Funding rates are below negative, which is a bearish signal for markets.

The funding rate in crypto refers to the mechanism exchanges use to balance long and short positions in perpetual futures markets.

Perpetual futures, or perps, are a type of futures contract that trade in perpetuity with no expiration date —they allow traders to continuously place leveraged bets on price movements.

The mechanics of funding rates involve longs paying shorts or vice versa — depending on whether the rate is positive or negative — which ensures the contracts track the index closely and there isn’t a wide gap between spot price.

Negative funding rates are a bearish signal as they show intent from short traders — who are willing to pay long traders. This indicates persistent investor caution, Bitfinex said.

If prices are to break out from this cautious bout of activity, the US Securities and Exchange Commission might play a significant role.

The SEC’s decision on whether or not to appeal the Grayscale decision, might “impact Bitcoin’s trajectory in both the short and long term,” analysts said.

Grayscale won its appeal to have the regulator’s rejection of its proposal to convert its Bitcoin trust into a spot Bitcoin ETF overturned in August. This “potentially paves the way for other companies to create Bitcoin ETFs,” and implies a “positive trajectory for Bitcoin’s institutional adoption and possibly its price,” Bitfinex said.

Indeed the leading digital asset by market capitalisation has benefited following positive developments around ETFs several times this year.

Bitcoin shot above $30,000 in June after BlackRock, Fidelity and others filed for spot Bitcoin ETFs. After Grayscale won its appeal to overturn the US Securities and Exchange Commission’s rejection in August prices briefly jumped again.

The decision was positive and it could usher in the entrance of traditional institutions, although the effect will “take time to manifest itself,” Bitfinex said.

If the SEC decides against appealing the decision on Friday then this could buoy sentiment in crypto markets.

Crypto market movers

• Bitcoin and Ethereum moved marginally higher overnight, up 0.2% and 0.4% on Coinbase by 3:30pm London-time. Over the past week, Ethereum has fallen 5% while Bitcoin lost 2.4%.

What we’re reading

• SBF on trial: A timeline of FTX, the worst failure in crypto history — DL News
• How third hack of the year walloped Platypus Finance investors for $1.6m — DL News

Adam Morgan McCarthy is Markets Correspondent at DL News. Got a tip? Reach out at adam@dlnews.com.