Bitcoin Futures and Options At Their Highest Level Since April 2022

• Despite macroeconomic fears, Bitcoin has maintained its position while top economies like China and Germany show signs of slowing economic activity.
• Notably, Bitcoin’s futures open interest reached its highest level since April 2022, coinciding with the CME’s growth as the second-largest market for Bitcoin derivatives.

The global economy has been facing turbulent times for a while with inflation soaring and 10-year US Treasury Yields hitting 5 percent. However, despite this, Bitcoin has managed to hold its position strongly and has been consolidating around $35,000 levels.

Despite the lack of significant price movement, the 24.2 percent gains achieved since October 7 are instilling confidence. These gains are attributed to the anticipated impact of the 2024 halving and the potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States.

Macro Fears in the Global Economy

The global economic scenario looks pretty gloomy as of now with the likelihood of global economic contraction as the U.S. Federal Reserve holds its interest rate above 5.25 percent in order to curb inflation. This week China reported that its exports tanked 6.4 percent in October, from a year ago. Similarly, Germany’s industrial production output is down 1.4 percent versus the prior month on Nov. 7.

Weaker global economic activity has pushed WTI oil prices below $78, marking the first time they’ve dipped to this level since late July. This price drop has occurred despite the potential for supply cuts from major oil producers. U.S. Federal Reserve Bank of Minneapolis President Neel Kashkari’s remarks on November 6 added a bearish tone to the situation.

We haven’t completely solved the inflation problem. We still have more work ahead of us to get it done,

Amid market shifts, investors have turned to U.S. Treasurys, resulting in a drop in the 10-year note yield to 4.55 percent, the lowest in six weeks. Surprisingly, the S&P 500 stock market index has reached 4,383 points, its highest level in nearly seven weeks, defying expectations in a time of global economic slowdown.

Simultaneously, Bitcoin’s futures open interest has hit its highest level since April 2022, reaching $16.3 billion. This achievement is particularly notable as the Chicago Mercantile Exchange solidifies its position as the second-largest market for BTC derivatives.

During an interview on Bloomberg’s Merryn Talks Money podcast, when asked to choose an asset to hold for a decade, Ark Invest’s Cathie Wood emphatically favored Bitcoin. She described Bitcoin as a hedge against both inflation and deflation due to the absence of counterparty risk and minimal institutional involvement, referring to it as “digital gold”.

Demand for Bitcoin Futures and Options Rising

The recent surge in Bitcoin futures and options has garnered significant media attention, reflecting investors’ anticipation of two key bullish factors for 2024: the potential approval of a spot Bitcoin exchange-traded fund (ETF) and the upcoming Bitcoin halving.

An effective measure of the market’s vitality can be found in the Bitcoin futures premium, which assesses the disparity between two-month futures contracts and the current spot price. In a robust market, the annualized premium, also known as the basis rate, typically falls within the 5% to 10% range.

It’s noteworthy that this indicator has reached its highest level in over a year, standing at 11 percent. This signals a robust demand for Bitcoin futures, primarily driven by leveraged long positions. Conversely, if investors were predominantly speculating on Bitcoin’s price decline, the premium would have remained at 5 percent or lower.

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