Notes 6/26: Binance.US Party Continues, Bitcoin Price Future

Bitcoin is changing hands at $30,242.35, relatively unchanged from its price a day earlier.

But the party is still on at Binance.US. Traders can make profits hand over fist at the exchange. They can purchase the cryptocurrency for $29,300 and sell it at other venues, where it is more expensive.

Or, they can redeem the Tether stablecoin for actual dollars. The controversial stablecoin,- whose supply makes a big difference in determining bitcoin price, has been off its peg for the last four days and is currently trading for $0.9684 at the exchange.

Or, they can make money off the massive bid ask spread at Binance.US. It has spiked from 2.18 on 18th June to 7.3, as of this writing. That spread is the difference between purchase and sale price and a big number indicates illiquid markets.

Notably, bitcoin, ether, and tether trades against the US dollar account for approximately 41% of the total trading volumes at Binance.US, meaning investors are exiting and the exchange’s liquidity position is in tatters.

Bitcoin Price Future

It is no secret that Binance, the world’s biggest cryptocurrency exchange by market capitalization, is one of the most important venues for bitcoin price setting. But its role in manipulating prices through trading activity on its platform is diminishing, according to research firm Kaiko’s latest missive.

The trading volume at Binance and Coinbase has fallen “significantly” after the Securities and Exchange Commission (SEC) slapped a case against the former this month, say the firm’s analysts. “…Rising relative Coinbase volumes could suggest this exchange is leading spot market movement since the start of June,” they write.

Coinbase has a lot of catching up to do; it is a straggler in overall trading volumes as compared to Binance. In June, Binance has already racked up $194.34 billion worth of trading volume at its spot exchange, so far, while Coinbase trails far behind at $24.4 billion.

Suspect Data

Of course, as with most things in crypto, those figures are suspect. Binance does not support US dollars and investors can only exit their trade through unregulated stablecoins that claim to have corresponding collateral as backing. Binance is unregulated. So are two of the stablecoins – Tether and TUSD – that account for the biggest volumes at the exchange.

Data from The Block shows that trading volumes spikes during bitcoin bull runs at exchanges that do not support US dollars. It was highest in April and May 2021, when bitcoin set the first of its two price records for that year. It also surged at the end of the first quarter this year.

The anomaly here is that liquidity conditions were drying up in the second instance as investors fled crypto due to regulatory crackdowns. One an overall basis, spot market liquidity is also down from the start of this year.

The Derivatives Options

Analysts are pointing to derivatives as arbiters of bitcoin’s price’s immediate price trajectory. This theory has been suggested before, notably in earlier research papers that investigated the role of perpetual futures at Binance in transmitting volatile from unregulated derivatives to spot markets.

The ratio of spot to futures volume has fallen from 0.68 in the first week of January to 0.22 yesterday, indicating an increase in futures volume. But that’s not saying much. Futures volume at regulated exchanges is down while unregulated exchanges, where wash trading is common, have driven the increase.

According to a CoinDesk report, open interest in bitcoin futures contracts jumped to over $11 billion over the weekend. The report does not break down the percentage of call, or bullish bets on futures price, and puts, or bearish bets, in this figure. The last time bitcoin futures reached this mark was just before Terra’s infamous implosion last year.

An Options Expiry to Move Markets

More interesting activity is occurring in the options market for bitcoin. Bitcoin options contracts worth $4.57 billion will expire at Deribit, the world’s biggest exchange for options. A strike price or price target of $30,000 is the most popular trade. Bitcoin price is sticking closely to that script for now. But the status quo might not last for long.

CoinDesk writes that a “slight move away” from $30,000 could translate to an explosive rally or a wild slide in bitcoin price. [Both those events have numerous precedents]. Barring an unforeseen event or another ETF filing surprise, this week’s calendar does not present much opportunity for positive momentum in bitcoin price. Unlike previous option expiry events, when a short squeeze pumped up bitcoin price, it might be an idea for investors to brace for the opposite movement this time around.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.