I read on whalepool that shorts were ATH again. Haven't bothered checking it for myself yet.
How much can the tail wag the dog ?
It's interesting to watch the relationship between the bitcoin cash settled markets and the spot market. Many observers - mainly gold trader pundits - are assuming that the derivative markets will "control" the spot market in Bitcoin the way it does in gold. However, I think it should not be as simple as that, at least in theory.
The main reason this happens in gold is because the underlying asset's inability to "travel through wires" has forced almost comprehensive decoupling of the two fundamental aspects of the trade - ownership and posession. In gold, only ownership is traded which means almost the ENTIRE volume is accounted for by the paper market and there's very little "anchor" in the physical because nobody actually takes posession. (Why would they). Even people who say they hold "physical" gold don't really. They hold custodial contracts which are not much better than a futures contract.
The question is: how much can the bitcoin cash settled markets influence the spot market ? That is the question.
The margin-traded derivatives markets such as CME and CBOE can make money on the way up as well as the way down. They don't care which direction the price goes in. On the other hand, the spot market generally does since "hodlers" are always long. If we look at the last 6 months trading at the longer ranges we can see how margin trading has "milked the bubble in the spot market. It blew the bubble in the latter half of 2017, then burst it right when the cash-settled markets opened, then "milked it in a zig-zag pattern on the way down.
The limits of the margin traded rollercoasterHowever look what's happening over time. The amplitude of the zig-zag is waning. There's less mileage in margin trading with every drop. Also, it's settling right at the level "Wall Street" had accumulated to at the opening of the futures markets late last year. As far as I can see, this means that recourse to the spot market is going to be required once again to repeat this process and indeed we can see accumulation going on if we "look through" the price trace to the underlying volume pattern which has been to the upside almost since last March.
OBV contrary indication when compared with price trace EMAReturning to the comparison with precious metals and the question of how "anchored" the underlying asset is compared with its derivative trading,
as far as I can tell, around 0.5% (90k BTC) of the bitcoin supply actually moves each day. To match this, around 1000 Tones of gold would have to be physically traded. i.e. not just ownership is exchanged but possession as well. That's $42 Billion of gold.
Given that around $200 Billion is not an unusual daily traded volume, I doubt the physical movements would be anywhere near the $42B.
That's why I don't think the Bitcoin cash settled markets have anywhere near the influence over the spot price that we think they have and certainly not the same influence that gold derivatives markets have over their underlying asset price.
Another way to look at it is simply how much the market devalues a monetary asset based on its sub-optimal monetary properties - one of which is mobility (physical liquidity). With precious metals, their inability to travel through wires has lead to a decoupling of the paper market from the physical in the sense that possession and ownership are traded independently of each other. That in turn has lead to a devaluation and sub-optimal performance of the asset in its traditional role - hedging against inflation of the fiat monetary base for example.
Liberating the "Underlying"Crypto, on the other hand is liquid in electronic markets. A far higher portion of the coin supply is traded in the sense of possession remaining with ownership. This puts cash-settled markets at a disadvantage because they are "outside the loop"in a way that they aren't with gold.
How is this Possible ?It basically comes down to the feature widely known as "public-private key cryptology". If we superimpose the model of bitcoin on gold, both public and private keys are co-incident. That means we need custodial services because gold hodlers cannot allow the metal to leave their posession and still retain control over it.
With public-private key cryptology, a cryptographic asset can be allowed to sit "out there" while retaining mobility, resistance to counterfeit
and still be under the control of the owner. Public and private keys are decoupled. That is the huge advantage in value that Bitcoin has as a monetary asset over precious metals. It's also the property that gives it far greater resistance to the kind of manipulation from derivatives markets that we see in PM'S.
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