Stock-to-Flow Model, Shrinking Exchange Balance, and Futures-based ETFs: Three Reasons Why Bitcoin (BTC) Is Not Heading Anywhere but Up

Stock-to-Menstruation Model, Shrinking Substitution Residue, and Futures-based ETFs: Three Reasons Why Bitcoin (BTC) Is Not Heading Anywhere but Upwards

Bitcoin (BTC), the world'southward premier cryptocurrency, is currently undergoing a price reversal of relatively strong vigor, as evidenced by BTC losing the primal $threescore,000 support level. However, three major factors keep to support an overall uber-bullish stance on Bitcoin.

Understanding the Cost Activity in BTC and its Financial Derivatives

Source: https://analytics.skew.com/dashboard/bitcoin-spot

Bitcoin had clocked in outsized gains in the runup to the launch of the first-ever futures-based Bitcoin ETF, the ProShares Bitcoin Strategy ETF (BITO). Given the size of the upward thrust, many expected a cooling-off catamenia to follow. Instead, BTC went on to mark a new all-time loftier of around $69,000 in early November. The Bitcoin futures basis charge per unit all-time illustrates this outsized exuberance.

Source: https://app.laevitas.ch/dashboard/btc/futures/ground

As a refresher, BTC futures usually move at a premium of between v and 15 percent relative to the spot toll. This is known equally contango and is spurred by the implied financing rate, the time left to contract maturity, perceived volatility, etc. Notice the peak ground of effectually twenty percent on the 09th of November. That meridian signified extreme exuberance, with futures priced at a premium of around 20 pct relative to Bitcoin's spot price.

Of grade, such a wide chasm is a welcome development for the basis trade – where sophisticated investors endeavour to exploit this arbitrage opportunity by buying spot Bitcoin and simultaneously selling Bitcoin futures. This, in plow, locks in this spread until the maturity of the contract when, by design, the toll of the futures contract and the spot cost converge.

The basis trade might have been partially responsible for the re-normalization of the spread between Bitcoin's spot and futures prices. Every bit an illustration, this spread is currently hovering at around a good for you x percent.

Interestingly, the current weakness in Bitcoin follows a major upgrade of the cryptocurrency'due south architecture in years. In what is dubbed equally the Taproot upgrade, the alter aims to ameliorate the privacy of multi-signature (multisig) transactions and unlock the potential for smart contracts – a program that automatically executes certain actions – to run on the Bitcoin blockchain. The Taproot upgrade would likewise reduce the block space required past transaction data – this is done by compressing the information associated with multisig transactions. Since smart contracts, by their nature, involve multisig transactions, the upgrade is expected to significantly enhance Bitcoin'southward smart contract capability. In anticipation of this upgrade, the Bitcoin Lightning Network – a Layer 2 protocol that facilitates peer-to-peer transactions – has more than doubled its capacity since June 2021. Therefore, the ongoing weakness in Bitcoin may but be a case of buying the rumor and selling the news type of move.

Source: https://app.laevitas.ch/dashboard/btc/deribit/options/volatility/overview

Additionally, Bitcoin option traders go along to remain in the neutral campsite in the virtually term. The 25 delta skew turns positive when more puts are being bought, indicating increased fearfulness among traders. This harkens back to the perception that downside protection is more valuable to investors than upward thrusts. A reading of between -viii% and 8% is usually considered neutral, with deviations beyond this range indicating increased vigilance. As is evident from the chart to a higher place, this measure is still in the neutral zone for Bitcoin, though heading in the wrong direction, at to the lowest degree in the curt-term.

Why is Bitcoin Heading Nowhere merely Upwards?

This brings us to the crux of the matter. At that place are several factors that support an uber-bullish stance on Bitcoin. On the primal front, a clause in the Us Infrastructure Nib caused a lot of consternation among crypto proponents. As per the provision, any person in the U.s. receiving over $10,000 in cryptocurrency was to be mandated to study the sender's personal data to the IRS. However, a new amendment introduced past U.s. senators Ron Wyden, chairman of the Senate Finance Committee, and Cynthia Lummis seeks to exempt developers of blockchain technology and wallets from this requirement, thereby restoring the ease of doing business for crypto exchanges.

Source: https://stats.buybitcoinworldwide.com/stock-to-menses/

In other news, Bitcoin's famous Stock-to-Flow model continues to point a price of $106,000 for the premier cryptocurrency. The rationale here is that Bitcoin has a finite supply. With each block that is mined, the enshroud of unlocked supply becomes smaller. Since scarcity normally leads to price increases, as Bitcoin'south supply pool becomes smaller, it should theoretically lead to higher prices.

Fresh multi-year lows for Bitcoin commutation balances but hit, on both @glassnode and @cryptoquant_com pic.twitter.com/JcVLvfK41P

— Charles Edwards (@caprioleio) November 17, 2021

Moreover, Bitcoin commutation balances are now clocking in multi-year lows. This is a bullish development as it indicates that more Bitcoin was moving off-substitution into common cold storage wallets, thereby indicating a long-term uber-bullish bias among the holders of the cryptocurrency. Bear in mind that this latest tendency started in September 2021 and has only go more pronounced in recent times.

Finally, the ProShares Bitcoin Strategy ETF (BITO) and other similar product offerings are also expected to contribute toward the cryptocurrency'southward bullish thesis. As an illustration, Fundstrat is now predicting that BITO volition concenter upward of $l billion in funds its start year of trading, equivalent to around $50 million in additional demand for Bitcoin per day! This has led Fundstrat to telephone call for an equilibrium price of Bitcoin at a whopping $168,000.

Source: https://wccftech.com/stock-to-flow-model-shrinking-exchange-balance-and-futures-based-etfs-three-reasons-why-bitcoin-btc-is-not-heading-anywhere-but-up/

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