Bitcoin Makes a Push for $57Ok as Fed Taper Fears Linger, Leveraged Funds Enhance Shorts

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Bitcoin jumped to a new five-month high early Monday, prolonging the two-week price rally, although Friday’s weak US labor market report failed to dampen expectations of a Federal Reserve (Fed) throttling in November. The market also ignored the data showing a supposedly declining positioning of leveraged funds in the futures market.

The cryptocurrency surged to $ 57,000 in the early European hours and hit its highest level since mid-May, according to CoinDesk 20 data. Prices rose 13% for the week ending October 10th, posting the second consecutive double-digit weekly gain.

Bitcoin’s continued resilience to normally declining macro factors could be attributed to the U.S.’s improved prospect of approving a futures-based Bitcoin Exchange Traded Fund (ETF) this month.

“The positive sentiment at BTC was partly driven by expectations of a possible approval for a futures-based Bitcoin ETF in the near future. Other factors contributing to the surge include continued inflows from institutional investors and SEC chairman Gary Gensler, who told Congress that the agency had no plans to ban crypto, ”Coinbase Institutional said in its weekly email.

U.S. employment data released Friday showed the non-farm workforce rose 194,000 in September, compared to the Dow Jones estimate of 500,000. However, the unemployment rate fell to an 18-month low of 4.9%, which kept the Fed on track to start pulling back on the crisis-era stimulus packages from November and hike rates through mid-2022.

“Friday’s headline-grabbing NFP vacancies did little to dampen Fed expectations about the tightening / tightening of expectations. For example, the December 2023 euro-dollar futures continued to fall, in line with the latest trend in the market revaluation of the US yield curve in the direction of the Fed forecasts in the September dot plots. That is bullish for the dollar, ”stated ING analysts in the daily market analysis.

Recent reports on the Soros Foundation’s exposure to Bitcoin and disclosure of Bitcoin purchases by U.S. Senator Cynthia Lummis may also have contributed to the upside sentiment.

The Commitments of Traders (COT) report released on Friday by the U.S. Commodity Futures Trading Commission (CFTC) found that hedge funds and various types of money managers who borrow money to trade were increasing their short positions from 18,000 to 22,000 in. the week ended October 5th.

The uptrend is not necessarily a direct short position and could be due to renewed interest in the cash and carry arbitrage strategy. The method is to buy the asset on the spot market and take a short position on the futures market if it is trading at a significant premium on the spot price. The futures prices converge on the expiry date with the spot prices, which gives a carry trader a risk-free return.

The premium on the CME-based front-month futures rose from 1.5% annualized to nearly 12% in the seven days to October 5, according to data from Skew.

While Bitcoin appears to be on a solid footing, some investors expect its price to decline temporarily. The week-long put-call skew has turned positive, reflecting demand for short-term downside protection or put options.

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