Bitcoin (BTC), the flagship crypto, continued to rally after the US elections, setting another all-time high this week, the team at NYDIG noted in a recent update.
As the Trump administration is starting to come into view with the naming of candidates for the various positions that are expected to be filled, NYDIG has looked at the underpinnings of the Bitcoin and crypto market rally.
NYDIG has examined flows, positioning, as well as the relationship between ETF flows and hedge fund basis trading.
As stated in the NYDIG report, funding rates on perpetual swaps jumped to levels “not seen since the ETF-induced rally that peaked in March.”
As explained in the report, perpetual swaps (perps) are a popular way for offshore traders to “get leverage on their crypto exposure, with a positive funding rate indicating an optimistic bias by traders and a negative funding rate indicating a pessimistic bias.”
Notably, funding rates spiked along with the rally “in spot, with longs increasingly willing to pay shorts (the other side of the trade) for upside leverage.”
The report pointed out that it has “moderated a bit with the price hovering around the $90K level.”
Although funding rates aren’t as “persistently positive” as they were during the March rally, they are still “elevated compared to historical averages.”
As mentioned in the update from NYDIG, the basis on CME-listed bitcoin futures, the annualized difference “between futures and spot price, hit mid-teens percentage levels during the recent rally.”
As explained in the market update, futures are one of the main ways onshore traders can get leverage on “directional views and therefore tends to be positively correlated with the price of bitcoin.”
The NYDIG research team thinks that this jump in the basis is reflective of enthusiasm, but like perp funding rates, “are still below the levels seen in March.”
As noted in the update, open interest on futures contracts (offshore perps and onshore CME futures) is “up in the rally, but not by a substantial amount.”
Their analysis is on the number of bitcoins represented by the open interest as the change in price “tends to have an overwhelming impact on dollar open interest analysis.”
The NYDIG analysis also noted that while open interest in bitcoin terms “is up 6.5% since the election, it’s probably not as large as one might expect given that spot is up 26.1% since the election.”
NYDIG researchers “dispelled” this notion once before, but apparently, it bears repeating because they are still “seeing some public analysis cite this factor.”
Coinbase-traded bitcoin (USD quoted) has traded “at a premium” to Binance-traded (USDT quoted) bitcoin, but only by “1 bps on average since the election.”
The public analysis fails to “consider the price of tether, which when normalized, removes most of the “premium” Coinbase-traded bitcoin supposedly trades at.”
The report pointed out that stablecoins are an important avenue for investors to convert their “cash into crypto, especially offshore.”
Total stablecoins outstanding jumped “substantially in the wake of the election, up $6.2B.”
This is indicative of new money “coming in off the sidelines to purchase digital assets, such as bitcoin.”
The report also stated that most of the stablecoin issuance “comes from USDT rather than USDC, as USDT is the main quote currency for offshore exchanges. Onshore trading venues tend to rely on the USD as the quote currency for trading with traditional banking conduits (ACH, wire) used to move dollars onto exchanges.”
The price of tether (USDT), the industry’s largest stablecoin, has been trading at a “substantial premium to $1.00, also a sign of strong demand for inflows into crypto exchanges.”
The report further noted that it was only 3 Fridays ago that the WSJ published a look into what was “supposedly a DOJ investigation into Tether’s activities, sending the price down significantly.”
The report added that “not only has no action come forth, but an article that came out suggested the DOJ would scale back its prosecution of cryptocurrency-related crime.”
With the rally in crypto prices and growth in stablecoin demand, tether’s price has “now flipped from a discount to a premium.”
Again, this is another sign of “increased demand for investor access to the digital asset ecosystem.”
Since the election, spot ETFs have gathered “$4.4B of net inflows, with over 70% going to BlackRock’s iShares Bitcoin Trust (IBIT).”
The total spot bitcoin ETF industry has now “hoovered up $27.8B of inflows since launching in January. ETFs are an easy way for traditional market participants to play the outcome of the election, so we don’t find it surprising to see funds come into the ETFs.”
As stated in the report, Bitcoin rallied “14.3% on the week and hit a new all-time high of $93,495 on Wednesday.”
Bitcoin’s rally continues while “other post-election trades, such as equities, have lost a bit of steam.”
Bitcoin is now up “105.8% year to date, far surpassing every asset class. Bitcoin’s market cap also passed to the total market value of silver, an important milestone in the asset’s history.”
Although it may take some time for bitcoin to surpass gold’s $17.1T market value (bitcoin is at $1.8T), the report pointed out that the “trend in gold, which had been a winning trade until the election, has reversed course.”
Bitcoin may have taken “some shine from the gold trade as the “faster horse” in the race, but there are likely other demand characteristics at play.”
With the bitcoin cycle “back on” after the US election, NYDIG analysts now expect the administration and policies to “come further into view in the coming weeks.”
Although there are cyclical indicators NYDIG thinks could be a good guide for investors, it is also worth pointing out that never before has bitcoin and crypto been a “political imperative, which should be a good thing for investors.”