This week, we focus on the latest developments in the Bitcoin trading market and ETFs because:
Last week, Bitcoin ETF became the exchange product with the largest capital inflow in the world + US$2.27 billion
The total market value reaches 69% of GLD
Contract market OI is close to all-time highs
Cryptocurrency concept stocks surge, network difficulty reaches new heights
These phenomena signal the growing prominence of cryptocurrencies, and Bitcoin in particular, on Wall Street.
We will also discuss some hot topics such as:
With the halving approaching, can the price hit a new high like last time?
Bitcoin ETFs account for more than gold in total market capitalization. Have ETF inflows come to an end?
Is there still room for ETH ETF hype?
Need to worry about a Genesis sell-off?
What are the hidden worries in Coinbase’s better-than-expected earnings report?
Which cryptocurrencies are riding the AI boom?
Will inflation and the AI craze, the biggest headwinds in the market at present, test investor confidence again?
Is there still room for growth in the valuation of AI leader Nvidia?
Futures/Contract OI is near all-time highs
Bitcoin futures open interest (OI) exceeded $22B, the highest since the BTC price peaked at $65,000 in November 2021, when the contract OI was as high as 23B. New funds entered the market and supported the current price direction, indicating that this The trend may continue for a while
Among them, CME’s BTC futures contract positions fell sharply (63B-44B) after the adoption of the ETF, but then quickly reached a record high, which means that more Wall Street investors are entering the market or existing investors are increasing their holdings. positions, and the rise in OI accompanying the rally shows that this further confirms the bullish sentiment in the market, as more investors are willing to buy contracts at higher prices:
The long-short ratio of Binance futures is at an all-time low:
The delivery contract premium remains within the normal range:
BTC 25 Delta option skewness is positive indicating that calls are more expensive (or more in demand) than puts, but the degree of positivity is not extreme, with 30-day Call having 4.8 percentage points higher implied volatility than Put at 90 and 180 days About 7 percentage points higher:
Recently, Binance's USDT financing rate exceeded 45%, which is quite rare. It shows that there is a lot of enthusiasm for leveraged long trading. Financing interest rates have been quite high since November last year, but based on the history of the past year, there seems to be no obvious reversal relationship between this indicator and the price of BTC:
Spot inflows top U.S. stocks
The Bitcoin spot ETF has performed strongly over the past week, with net inflows exceeding $2.27 billion (44,865.4 BTC) from February 12 to February 16, nearly half of the total inflows since listing.
At the same time, BTC ETFs’ net inflows last week ranked first among all US ETF products (of course this is a group of ETFs versus a single theme ETF). $IBIT alone attracted $5.2B, accounting for 50% of total net ETF flows across BlackRock’s 417 ETFs:
The market value of trading products catches up with gold
Open interest in both the contract and spot markets increased simultaneously, adding liquidity and volatility to the crypto market. Generally speaking when price and OI rise sharply at the same time, this may indicate that the market is overheated. This phenomenon is mostly accompanied by speculative buying driving up prices, and as investor sentiment reaches extreme optimism, negative news or events can cause a market stampede to reverse. But the point is that now that BTC has a strong inflow of new ETFs, it is reasonable for the overall holdings to rise to a higher level. We cannot completely compare history horizontally to judge whether it is overheated.
Outflows from 14 major gold ETFs have reached $2.4 billion so far in 2024. ARK’s Cathie Wood believes gold’s “replacement” to Bitcoin is underway. But we can’t ignore that FOMO sentiment in U.S. stocks may also be another force sucking money away from gold investments right now.
The current market value of Bitcoin spot ETF is $37B and gold is $210B, accounting for 17.6%; if we only look at the largest and most liquid $GLD, it is 54B, accounting for 69%. The speed at which Bitcoin is catching up with gold is surprising:
The BTC ETF accounts for approximately 3.7% of Bitcoin’s market capitalization. By comparison, gold ETFs are equivalent to 2.8% of the total market capitalization of surface gold (excluding jewelry). The BTC ETF has outperformed its biggest rivals on this metric, but is this a sign of overheating? This conclusion alone cannot be drawn.
Because on the other hand, the total number of BTC currently held by enterprises, governments, and funds is close to 2.2 million, with a value of more than 110 billion U.S. dollars, exceeding 10% of the total planned issuance of BTC, and exceeding 11% of the BTC that has been mined. If the unused BTC is included, According to the disclosed data, this ratio should be higher, but compared with the overall institutional holding ratio of U.S. stocks, which is as high as 70 to 80%, there is still a lot of room for growth:
Average daily net inflow is 3,700 BTC
It is recommended that interested friends make a comparison chart of the daily net flow of ETFs and the daily production of BTC. The current daily production is about 1,000 pieces, and after the halving in late April, there will only be about 500 pieces. As long as the net inflow is greater than the production, it can form a negative impact on the market. A confidence boost.
So far, the Bitcoin ETF has a net inflow of approximately 96,000 BTC after its listing, with an average daily inflow of 3,700 BTC over 26 trading days.
Bitcoin's current valuation of $1 trillion puts it among the top ten tradable assets in the world, even ahead of Warren Buffett's Berkshire Hathaway (market cap of $875 billion).
Cryptocurrency Concept Stocks
Cryptocurrency concept stocks have surged since February, especially BTC mining companies, whose gains have far exceeded that of Bitcoin itself. Among them, $CLSK announced last week that it has completed the power-on of its first 100-megawatt expansion project at its Sandersville, Georgia, U.S. plant. This achievement increased Cleanspark's computing power by 40%, exceeding 14 EH/s and currently ranking third among U.S. listed companies. Combined with the first-quarter financial report that exceeded expectations, $CLSK became the most eye-catching among crypto stocks:
The total computing power of the Bitcoin network has increased by 260% in the past three years:
COINBASE achieves profitability for the first time
The most noteworthy thing about crypto-concept stocks is COINBASE’s Q4 financial report last week. As the only digital currency trading platform stock in the United States, it achieved quarterly profit for the first time in two years since its listing: Coinbase reported fourth-quarter revenue of US$950 million, exceeding market consensus expectations. $820 million. Profit in the fourth quarter was US$273 million, compared with a loss of US$557 million in the same period last year. It unexpectedly achieved quarterly earnings of $1.04 per share, significantly beating analysts' expectations for a loss of 1 cent per share.
Although it looks good, as the market rebounds from the bull run, Coinbase's total trading revenue is still down 44% year-on-year - with trading volume of $468 billion in 2024, continuing to decline sharply from $830 billion in 2022 and $1,671 billion in 2021.
But despite lower transaction volumes, the company's other assets, notably custody of client crypto assets, increased significantly by +155% to $192.6 billion, subscription and services revenue increased 78% to $1.4 billion, and total operating expenses were slashed $2.6 billion, which more than offset lower trading revenue, resulting in net income of $95 million.
However, a closer look at “subscription and service revenue” is a bit misleading. The majority of this revenue (870 million) comes from interest income on stablecoins or deposits, mainly due to rising interest rates in the overall economic environment, which is beyond the company’s control.
The other is the decline in the number of active traders - MTUs (Monthly Transacting Users): refers to users who have made at least one transaction within a 28-day rolling period. MTUs will average 7 million in 2023, down consecutively from 8.3 million in 2022 and 11.2 million in 2021. This is strange because the activity of the crypto market in terms of transaction volume and OI increased significantly in the third and fourth quarters, but active users even declined.
Additionally, an estimated 52 million Americans own cryptocurrency, according to Coinbase.
For 2024, Coinbase predicts that quarterly revenue in Q1 of this year may exceed $1 billion for the first time, but expenses are also expected to increase.
Coinbase shares subsequently closed up 9% at $180, but are still well below the $381 opening price they opened after their 2021 debut.
Faced with the launch of Bitcoin ETFs with lower transaction costs, Coinbase was previously expected to lower its platform transaction fees. Judging from the sharp decline in the number of active traders, Coinbase should be under pressure, but so far it does not seem to have responded. Countermeasures: Judging from the CFO Q&A, they still believe that spot ETFs may lead to more investors looking for more cryptocurrency exposure on the Coinbase platform, so they do not intend to take the price competition route.
At the same time, it is important to note that Coinbase’s newly opened overseas derivatives exchange has attracted a large number of transactions and launched derivatives products for eligible U.S. retail traders in November. This development is very important. Considering that the derivatives market far exceeds the spot market, I believe Coinbase has huge growth potential in this area.
The consensus among Wall Street analysts is leaning toward "Buy," with a median consensus target of $165 and targets ranging from a low of $60 to a high of $250. This high variance target range highlights the highly uncertain and speculative nature of $COIN’s future value.
Halving the threat
The halving of BTC production in April will pose a threat to Bitcoin miners. As Bitcoin issuance reduces from 6.25 BTC per block to 3.125 BTC, Bitcoin’s inflation rate drops from 1.7% to 0.85% per year. The marginal impact of deflation is getting smaller and smaller, which theoretically supports the price. The effect will not be as good as before.
Miners' income from block rewards is effectively cut in half, but payouts must increase.
However, miners are also preparing for reduced block rewards through financial strategies, including raising funds through the issuance of stocks and bonds and selling cryptocurrency reserves. This strategy is crucial to maintaining the stability and security of the Bitcoin network after the halving. It's important. In addition, innovations on the Bitcoin blockchain (such as Inscription and L2) have increased miners' fee income and are not as dependent on block rewards as before, so we expect that the network's computing power can still repeat the previous rebound pattern after a brief decline.
But it is more difficult to predict prices, because the surge after the last halving was accompanied by the global fiscal + monetary policy after the new crown epidemic. This time there is no such background.
Looking back at the 2020 halving, which resulted in the block reward being reduced to 6.25 BTC, Bitcoin’s hash rate subsequently dropped by 30% in two weeks, with the price barely changing around $9,000. However, the system quickly adapted, breaking the record just seven weeks later with a new all-time high hash rate. It only took eight months for the price to reach an all-time high of nearly 65,000.
The price of LTC, which was halved in advance in August last year, once rose from around US$80 to US$115 before the halving, but soon fell to US$56 after the halving. It is currently hovering near US$70 and has not yet been able to rebound in the face of the recent bull market. Pre-halving levels.
However, the computing power of the LTC network has hardly been affected by the halving, and has increased by more than 30% since August:
ETH ETFs gradually become the focus
Last week, ETH broke through the $2,800 mark and set a new 21-month high, with an increase of 11.6%, far exceeding BTC's 6.3%. Judging from social media sentiment, the positive effects of BTC spot ETF have refocused investors on the possibility that ETH spot ETF may be about to pass. sex. Just last week VanEck and ARK/21Shares submitted updated application documents for their spot Ethereum ETF registration.
Since BlackRock proposed a BTC spot ETF application in June last year, BTC has rebounded by 100%, while ETH has only rebounded by 70% during the same period. In theory, the price of ETH, which has a smaller market value and more usage scenarios, should be more elastic, so the price of ETH If spot ETFs can be issued, their bull market price performance should be better than BTC. In addition, regulated Ethereum products can also provide up to 5% APY when tokens are pledged, which is more attractive than non-yield BTC ETF products.
The share of closed fund ETHE has shrunk significantly in the past six months. We have repeatedly prompted relevant opportunities in last year's report "Opportunity or Trap to Buy ETH at 50% Discount?" "In-depth Analysis of Grayscale Trust", "In-depth Interpretation of Grayscale Trust | Why can I buy Ethereum at half price?" (two)". The management fee of Grayscale Ethereum Trust is 2.5% of the net asset value (NAV) per year. If other risks are not considered, today's discount can be understood as the discount of the opportunity cost of holding a position. Therefore, based on the secondary market discount rate
Opportunity cost of holding positions + 10-year U.S. Treasury bond yield + 2.5% management fee, then: (1-Y)^T=1+X
Available: T=ln(1+X)/ln(1-Y)
Then the current discount of 11.89% still corresponds to the expectation of returning to parity in −2.6 years, which is still too long. In the context of the passage of BTC spot ETF this year, we cannot see any resistance to the passage of ETH, so if we buy ETHE and short ETH in perpetuity The strategy of the contract, in addition to making money at a narrow discount, can also charge a certain positive funding rate:
GBTC passed the ETF and this discount narrowed to 6.x% the week before:
Genesis' potential $1.3 billion 'fire sale'
On February 14, a bankruptcy judge approved Genesis to liquidate approximately $1.3 billion worth of GBTC as part of efforts to repay creditors. Since the rules of the bankruptcy plan allow Genesis to convert GBTC shares into underlying Bitcoin assets on behalf of creditors, or sell the shares directly and distribute cash, it is unclear how much of this money will ultimately flow out of the cryptocurrency ecosystem, and if users will still be repaid in cryptocurrency , then after liquidating GBTC into cash, the cryptocurrency spot will be bought back, so the impact on the market will be limited. Otherwise, there will be a certain impact.
After the court news was announced, the market did not panic too much, and BTCUSD still fluctuated above $50,000.
AI and cryptocurrency
According to a recent report by Stocklytics, the total market capitalization of artificial intelligence (AI)-related cryptocurrencies has exceeded $12 billion:
The AI-related cryptocurrency with the highest market value is TAO (Bittensor), reaching $3.88 billion, and its price has increased 11 times in five months. Bittensor (TAO) is a decentralized machine learning protocol that serves as a marketplace for algorithm providers and users in the fields of artificial intelligence and machine learning. Miners provide algorithms by contributing their processing power and machine learning models to the network. Clients who require ML algorithms as input to their own solutions will need to pay TAO, the protocol’s native cryptographic token, to access them.
The market value of second place RNDR (Render) is only less than half of US$1.87 billion. RNDR can be used to pay for animation and rendering tasks.
The third-placed Akash Network’s AKT has a market capitalization of just over $800 million.
Of the other six cryptocurrencies, only one, Fetch.ai’s FET, has a market capitalization of more than $500 million, while the other five range from $450 to $280 million.
Of the cryptocurrencies in the above list, only RNDR, FET, and AGIX are listed on the Binance exchange. TAO, which has the largest market value, is not even listed on OKX.
However, we believe that AI concept digital currencies should also include WorldCoin ($WLD). Although the project itself is a digital identity concept, because it is a project released by the founder of OpenAI, the leader in the AI industry, every time OpenAI or Sam himself has When there is big news, WLD will follow the fluctuations without exception. For example, last week OpenAI launched a text-to-video AI model called Sora, which amazed the world with its results, and subsequently WLD surged by more than 50%. Sam believes that in a future world with a large amount of artificial intelligence, it will become increasingly important to understand who humans are. This is one of the important missions of WLD.
Trends of major AI concept cryptocurrencies in 2024:
The Biggest Headwinds: Inflation and the AI Boom
Since most policy and high-leverage risks have been cleared last year, including related bankruptcies or regulatory lawsuits such as Voyager, Genesis, FTX, Ripple, and Binance, the foundation for this round of rebound is relatively healthy. However, the problem is that the last bull market before 2021 was based on low interest rates. At that time, U.S. bond yields were lower than 0.5%, coupled with dual fiscal and monetary stimulus, which led investors to seek risk assets with higher yields. The prices of almost all assets and goods and services in cryptocurrency are rising. The US CPI once rose above 8%. Before that, the Federal Reserve started the process of raising interest rates and proactively burst the price bubble. BTC peaked 8 months earlier than inflation.
Chart: US CPI and BTC price
As the two major inflation data released by the United States last week, CPI and PPI, exceeded expectations across the board, service inflation rekindled and housing prices rebounded beyond expectations, indicating that the country's inflationary pressure continues. Coupled with more recent upbeat economic data, expectations for the Federal Reserve to cut interest rates have been repeatedly pushed back.
Although the interest rate derivatives market has been repricing the weakening of interest rate hikes for more than a month, the stock market and cryptocurrency market have not reacted to this. This is because each still has independent themes that are enough for investors to ignore the interest rate market. progress, but this does not mean that one day when the market enthusiasm is exhausted, investors will not see this issue again. This is still the biggest headwind for risk assets to continue to rise.
After two price data that exceeded expectations last Friday, the momentum of the US stock market's surging momentum in the beginning of the year finally subsided. However, even so, the decline of the market was still limited. The S&P 500 index fell 0.4% for the week and closed near the all-time high. The postponement of the expected interest rate cut from March to June does not seem to make investors too nervous. Currently, market attention has turned to the results that AI leader Nvidia will announce next week, which directly determines whether this hype frenzy can continue.
The last report forecast earnings per share (EPS) of $3.39 on revenue of $16.11 billion. The result was earnings in late November that beat expectations by a wide margin, with earnings of $4.02 per share on revenue of $18.12 billion. Despite delivering very strong numbers, the NV share price subsequently experienced a brief downturn, retracing 10% from its highs (500–455).
This time around, expectations are significantly higher, with earnings of $4.57 per share expected on revenue of $20.36 billion, and it's uncertain that even if the data beats expectations again by then, the market will take a breather. However, this will not affect the long-term optimism. In the past few weeks of earnings season, major customers such as Meta, Google and Microsoft have launched newly defined artificial intelligence strategies. Demand for computing chips is unlikely to decrease. These big technology companies Promised future spending on artificial intelligence is in the tens of billions of dollars.
Just over a month into the new year, NV's stock price has risen by 50%, and its current market value exceeds US$1.7 trillion. With shares trading at sky-high valuations ahead of the earnings release, it's easy to think that all the good news has been priced in, and even the slightest hiccup could cause the stock to plummet. But in fact, although NV's historical price-to-earnings ratio is as high as 95 times, its 12-month forward price-to-earnings ratio is only 35 times, which is not an exaggeration, because the S&P 500 is 20 times, META is 23 times, AMD is 47 times, Tesla is 65 times, and ARM is 95 times. times.
Goldman Sachs, Bank of America and other institutions have recently raised their Nvidia price targets. If the new target is set at US$800, it means that the valuation will exceed US$2 trillion:
Stock Market Money and Sentiment
Weekly fund flows: Stock inflows of $16 billion (U.S. $11 billion, China $3 billion), bonds inflows of $11.6 billion, gold outflows of $600 million, and cash outflows of $18.4 billion (the largest outflow in 8 weeks).
It is suspected that national team buying is supporting the market. The net inflow of Chinese stock funds tracked by EPFR in the past four weeks was US$44 billion. Of course, due to the Spring Festival holiday last week, the data value includes the inflow from February 8-9, and the single-week data may be underestimated. :
The Bank of America Bull and Bear Index fell from 6.8 to 6.6, which is at the neutral level:
The cash level in the fund managers' investment portfolios surveyed by Bank of America in February dropped to 4.2%. When cash reaches or falls below 4.0%, a "sell" signal from Bank of America will be triggered:
Goldman Sachs’ institutional sentiment indicator has entered overheating for the first time this year:
The long-short gap in the AAII investor survey fell sharply, from the 87th to the 68th percentile, mainly due to the increase in the proportion of shorts:
Deutsche Bank's measure of overall stock positioning has declined, retreating slightly from six-month highs and currently sits in the 84th percentile. Among them, the positions of independent investors have declined (88–87 percentile), while the positions of systematic strategies have continued to increase slightly (78–79 percentile).
Buyback announcements continue to rise during this earnings season:
