Bitcoin, mass adoption or simple speculation?

In the past two years, a very complex historical period and above all undermined the approach to mass adoption of Bitcoin. Its popularity was mostly created by the diligent research conducted by High performance asset investors.

How has the general context affected the mass adoption of Bitcoin

Covid-19 has highlighted how completely inefficient the current capitalist economy is for a single individual, but only effective for companies that tend to operate by contracting out debt.

economic inflation Link Levels not seen since the 1970s (8.5% – As of March 2022) This shook the entire global economic system. Major investors and funds, especially institutions, have had to turn to many investors trick To ensure that their capital does not lose its value over the years and therefore they have to make use of the few and therefore highly volatile capital assets.

This resulted from a sharp drop in the yield on bonds, which are considered safe investments. In fact, investors have had to resort to risky assets since opportunity cost leaned towards him more risk premiumin order to build a fortune, I favored securities like stock indices, global stocks, and crypto assets that certainly offered more interesting returns than initial risks.

The strong relationship highlighted correlation coefficient between US stocks and Bitcoin.

As evidence of this, Bitcoin from March 13, 2020 (Minimum historical date before the start of Bullrun) until April 14, 2021 (The date of the last rally before the first crash) It has performed over 1500%.

This movement has been dubbed by the mainstream media.crowd everything‘, was created with the name capital cost It was canceled due to the expansionary monetary policies implemented by the central banks of the Arab Republic of Egypt G20.

Many market analysts are constantly looking for comparisons to past cycles to try to understand how Bitcoin will perform in the near future. However, it is necessary to emphasize a factor that is a little known but fundamental to understanding this The current cycle we are witnessing is very different from the previous ones.

Bitcoin New Cycle

In fact, in the past two years, Increased interest in financial derivatives And with them the use of leverage (a tool that allows you to take out loans thanks to the credit limit of the provider, in exchange for the trader using less capital for the position and thus making profits – but also losses in the negative case – large).

It is also necessary to emphasize the inconsistency of the financial system. Bitcoin is still an unregulated asset, while some financial derivatives of Bitcoin (such as futures and options CME, ETF on futures). why is that? Financial institutions (credit institutions, commercial banks or companies) cannot operate on unregulated assets, and therefore their exposure to the real asset was not, But compulsorily on derivatives.

This consideration completely changes the view of Bitcoin and is the key to understanding the strong inefficiency that occurred between 10k and 65k and Determine future movements.

To understand this concept well, derivatives must first be divided into two large areas:

  1. the future
  2. options

In this article we will cover both.

future

Futures contracts are divided into two main areas:

  1. Currency Margin: Cryptocurrencies are used as collateral for transactions and you win or lose in cryptocurrency.
  2. stable – margin: Stablecoins are used as collateral for transactions and stablecoins are gained or lost (mainly in US dollars)

To understand the scope of this discourse, we must start with the graph representingfrank interest (= number of open contracts)

The first thing you notice is the significant correlation between the number of open contracts and the Bitcoin price trend

Although the increase From OI Amount of Bitcoin Existing in exchange derivatives has decreased significantly since March 2020

This means that those who manage capital on derivatives are Strong hands.

But the most interesting thing is to see how, since the May crash, the use of currency margin, which is necessary for the “organic growth” of the asset, has reached zero, Compared to those with Tether which continues to increase instead.

Simultaneously with the strong increase in open interest, the Leverage Ratio (which indicates the ratio between the open interest and the number of currencies on the exchange) has increased, which means that there is a greater use of leverage.

From a technical point of view, past data has shown that in recent times, to understand price movements, it is more useful to look at derivatives data rather than spot market data, although in future data we should highlight data on which we need to focus more. on.

Looking at the reserves of Tether on the exchange, it is very easy to see a file Significant difference between the derivatives market and spot market volumes.

In addition, it must be emphasized, as mentioned above, that only large financial and institutional institutions that manage large capital, have access to regulated derivative instruments, including The CME which have larger trading volumes.

In fact, it is very important to track the flow of capital passing through these instruments, such as Institutional liquidity is second only to whale capital.

This chart shows the daily trading volume on futures contracts CME with attachment Open interest of himself.

This graph instead shows a file monthly rotation (Entry capital into contracts) for futures contracts CMEWhich, as we see, amounts to numbers between 90 billion and 100 billion Per month.

Options

Another tool, little known to retailers but widely used by institutions, that allows for speculation, is options.

Unlike futures contracts, they have a much lower volume (See the picture below), as they are unconventional trading tools that are used as a hedge of capital for certain reasons, such as hedging.

The largest trading volume found on Derpt It is mostly used by whales and hedge funds, while the organized institutional part is unique CME which however contain very low volumes.

The privacy of options is represented by delta. This is one of the four indicators that measure the risks inherent in options to traders. Specifically, exposure to a price change between the valuation of the option contract and the underlying (spot market).

Options on BTC often present themselves as outside the drains, or when the asset price is less than the strike price, for purchase options, Vice versa set options. This actually has a statistical drawback if it is used incorrectly and it is The reason for the low trading volume.

In fact, as mentioned earlier, it is only used as a hedge To hedge against the volatility of basic or arbitrage strategies.

If options trading volumes were added to the futures volume, we would have billions of dollars worth of value exceeding the volume of the spot market. The bitcoin spot market is currently worth about $50 billion.

Spot size can be roughly calculated based on reserves on exchanges for the average Bitcoin price in The last 90 days. This is thanks to the lack of leverage. The amount of bitcoin outside the exchanges should not be taken into account because it cannot create pressure on sales unless the coins are paid in exchange.

On the other hand, the dollar value found in derivatives markets, which is also around $50 billion, is higher anyway because there is potential to use the following tools to carry out price manipulation:

    1. the crane (up to 125x)
    2. stablecoins

Finally, Watch only and exclusively the movements on spot market neglecting enterprise operations, and continuing to believe that the prices reached in the last year and a half are due to mass adoption, It has already been proven to be an incorrect assumption.

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