Bitfinex Alpha | High OI and Neutral Funding Is Good for BTC

Bitcoin has continued its upward momentum in the past week, reaching a high of $69,586 in early trading on 21 October. As it approaches the $70,000 mark, we will see the first real resistance test for BTC, a level last seen during the Nashville Bitcoin Conference in July. A strong correlation between Bitcoin’s price action and Donald Trump’s election odds has been observed, with the cryptocurrency market showing increased sensitivity to political developments as investors gauge the potential impact of a Republican win on future crypto regulations.

Open interest (OI) in Bitcoin perpetual and futures contracts surged to an all-time high of over $40 billion, reflecting heightened speculative activity. While this increase in OI can indicate strong market participation, there has been some concern about the disparity between rising OI and Bitcoin’s lower highs, suggesting that much of the current price movement is driven by leveraged futures positions rather than spot market demand. What is different this time, however, is that funding rates remain neutral, indicating that perpetual market longs are not excessively out of balance. 

While a pullback to reset OI may be possible, the broader outlook remains bullish, supported by macroeconomic factors such as potential Federal Reserve rate cuts, increased liquidity, and the potential for improved regulatory conditions for crypto in the US. As a result, Bitcoin could continue its upward trajectory, and if it convincingly passes the $70,000 resistance level and breaks out of its eight-month consolidation range, it could be on track to mirror the strong performance seen in October 2023, when BTC did not look back after passing $30,000.

Supporting this viewpoint is the latest US consumer spending data, which was buoyed by lower gas prices, wage growth, and steady incomes, resulting in a 0.4 percent increase in retail sales in September. Despite inflation and a cooling job market, consumer spending remains robust, supported by low layoffs. This has led to an upward revision in Q3 GDP growth to 3.4 percent. We expect the Fed to lower interest rates by 25 basis points next month to support continued growth.

Meanwhile, the housing market cooled in September, with housing starts and building permits declining slightly after a strong August. Rising mortgage rates have dampened market activity, though builders remain cautiously optimistic. 

While the Federal Reserve’s recent rate cuts have eased mortgage costs, the recovery in the housing sector is expected to be gradual, with challenges like affordability and housing shortages likely to persist. A moderate rebound is anticipated as interest rates stabilise, but further rate reductions will be key to boosting market momentum.

The cryptocurrency industry is experiencing both growth and challenges, with key developments shaping its landscape. Plasma Network has successfully raised $3.5 million, with Bitfinex leading the round, to enhance access to stablecoins like USDt on the Bitcoin network. By integrating compatibility with Ethereum smart contracts, the network aims to broaden Bitcoin’s utility, particularly for decentralised applications (dApps). This expansion marks a significant step in enhancing Bitcoin’s role in decentralised finance (DeFi) ecosystems.

In regulatory developments, the SEC has approved NYSE and Cboe to list and trade options on multiple spot Bitcoin ETFs. This move ensures that these financial products meet regulatory standards to prevent fraud and protect investors, further legitimising and expanding the range of Bitcoin-related offerings in traditional financial markets.

Meanwhile, the crypto industry has faced a setback with Radiant Capital’s loss of over $50 million in a cyberattack. An attacker gained control of three private keys, allowing them to exploit blockchain contracts and drain user funds. In response, Radiant has paused its operations on both Base and Mainnet.

Have a great trading week!

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