Examining the impact of the Coinbase listing on Bitcoin price action. Futures Open Interest reaches all-time high. Why, Doge, Why?

Not yet a Ledn client? Start earning 12.50% APY on your USDC and 6.10% APY on your first 2 Bitcoin - click here to open your Ledn account!

Follow us on social media: 

@hodlwithledn @cryptonomista

The Bitcoin Economic Calendar:

Week of Monday April 19th to Sunday April 25th.

Market Commentary:

Bitcoin:  Coinbase's public listing may have had a lot to do with the volatile price-action that we saw in Bitcoin last week. Let's break down what happened and shed some light on the market dynamics that led to the moves:

On Wednesday, the day of the listing, Bitcoin rallied to a new all-time high of $64,895, this coincided with a record volume of open interest in the Bitcoin futures market. 

Taking a closer look, the open interest all-time highs was reached in mostly unregulated venues, and likely a factor of the implied leverage that it provides to investors - the CME did not see a new record in futures open interest last week.

This was the first sign that the additional activity in the futures market was likely driven by retail investors - and not institutions. Second, there has been a record number of new users entering the network in the last 3-weeks, which also suggests a surge in retail participation.

To cap it off, the funding rates for Bitcoin perpetual futures swaps were very high all week (before and after the listing).

Since most individual investors around the world (namely outside of the United States) did not have access to buy Coinbase stock - they were likely driven to speculate on the price of bitcoin using excessive leverage. Yahoo reported that day traders purchased a net of $57 million in Coinbase shares on its debut on Wednesday - compare that with just one institutional investment from Kathy Wood's ArkInvest which was announced for $246 Million on Wednesday. In other words, retail participation was dwarfed by the institutional interest in Coinbase's initial listing.

The built-up in excessive leverage on the Bitcoin futures markets led to an aggressive move downwards of -15% starting at midnight EST on Saturday and continuing overnight. This made the funding rates in most perpetual futures swaps drop significantly and even get to be negative for a short period - even the implied annualized return of quarterly futures went negative. These futures settle at par, so the only way they would stay negative for long is investors literally running out of capital to buy the future and sell the spot to hedge.

Bitcoin finished the week at $56,280, down -6.17% for the week. To put Saturday's move in perspective, the weekend move liquidated $7.6 Billion of long positions in one hour, and a total of $9.4 Billion in the 24-hour period - more than 2 times the total liquidations on March 12th, 2020. These types of moves allow investors with more conviction - and less leverage, to accumulate their long positions at a better entry point. As the dust settles around the Coinbase listing, more investors will look to make educated investments in the space. Consider the headline below from Barrons, published over the weekend:

We'll cover what we're seeing in the Bitcoin Futures, and Options front in our What's Ahead section later today.

S&P 500:  Last week both JP Morgan and Goldman Sachs had blowout earnings - however, Goldman's stock barely moved higher +3.48% and JP Morgan sold off -1.98%. The major indexes still moved to fresh all-time highs, yet again - on the back of a falling U.S. dollar index -0.70% and a dropping yield on the 10-year note -5.58% to close at 1.57%. The S&P 500 closed the week at 4,183, up +1.48%. The Dow Jones also made a new all time high at 32,400, up +1.18% - and lastly, the Nasdaq moved to a new all-time high of its own at 14,041, up 1.42%. 

The Russell 2000 index, which tracks small-capitalization stocks has not broken past the level that Tom Lee mentioned 2 weeks ago as his "confirmation" of a broad continuation rally. However, looking at the U.S. dollar and the yield on the 10-year note, it does seem that those 2 are losing their upward momentum and looking for continuation downwards. This could continue to provide a tailwind for equities. 

Earnings continue this coming week, with some relevant ones being: Netflix (stay-at-home trade darling), and Johnson & Johnson (vaccine production update and forecasts) set to report on Tuesday, Intel on Thursday, and American Express on Friday. 

Gold: We saw some interesting price-action in gold last week, moving higher by +1.81% closing at $1,775/oz. This was the largest move up in gold since December 2020. The move was likely the result of a cocktail of positive macro conditions and geo-political news.

On the geopolitical front, Reuters reported over the weekend that China started allowing its international banks to import gold in large amounts. They may be trying to strengthen their bank's balance sheets ahead of potential currency debasement. Remember, a lot of Central Banks hold U.S. dollars in their reserves, along with a select group of other currencies. If they (Central Banks) feel that the value of the dollar, or currencies in general, is poised to lose value versus hard assets like gold, this could trigger an arms race for hard assets, which could potentially include bitcoin.  It will remain to be seen if these moves elicit a response from western politicians and central banks.

DeFi: The FTX DeFi index also had a very peculiar weekly candle, reaching a new all-time high intra-week, before moving significantly lower over the weekend, before settling to close up +5.79% on Sunday evening. The Coinbase listing likely affected this price-action as well.

The big story of the week in alt-coin land was Dogecoin, which soared over 400% intra week after Elon Musk once again started tweeting about it. As Meltem Demirors, founder of CoinShares, pointed out, this was likely driven by the fact that the now infamous r/WSB subreddit, the architects of the GameStop movement, started allowing cryptocurrency discussion on Wednesday ahead of the Coinbase listing. Specifically, around Bitcoin, Ethereum and - yes, Dogecoin. The move has all the makings of GameStop 2.0 - except this time there is no hedge fund to short-squeeze. It is a crowd-funded dream that, although fun to watch, will likely not have a happy ending for most. Stay safe out there. 

Difficulty Commentary:  We had a new difficulty adjustment kick in last Thursday which brought us to a new all-time high in difficulty of 23.58 TH. There was a big drop in hashrate over the weekend, allegedly attributed to a wide power outage in China which took down a significant portion of mining capacity. Hashrate has since levelled, showing only a -2.86% drop for the next difficulty adjustment.

The size mempool has shot back up with the increased volumes leading up the Coinbase listing and further exacerbated by the aggressive move downwards overnight. Transaction fees are elevated - which can lead to longer transaction processing times.