Prevailing Arbitrage Trading Keeps Bitcoin Price Stuck in a $7,500 Range
Summary:
Bitcoin's price is stabilized within a $7,500 range due to the growing prevalence of cash-and-carry arbitrage trading. Despite formidable investment inflows, the rising trend of taking long positions in Spot ETFs and simultaneously shorting futures on the CME Group exchange has kept the price balanced, with insufficient momentum for an upward surge. The current price is trapped between significant support and resistance levels, leading to a stable price and reduced volatility.
Over the past month, Bitcoin (BTC) has been hovering within a $7,500 range, unable to surpass its 2017 peak of roughly $69,000. Since May 17, its value has oscillated between a high of $72,000 and a low of $60,000, making numerous unsuccessful attempts to exceed a new all-time high of $73,800. On the day of June 19, the BTC price rose by 0.8% to hit a daily peak of $65,705, hinting at a prolonged consolidation phase amid reduced trading activity. We will now examine the factors contributing to this ‘price plateau’ phenomenon.
The prevalent practice of cash-and-carry arbitrage trading has been identified as a primary factor causing Bitcoin's recent price stagnation, according to data from Glassnode. This particular trading strategy involves establishing a market-neutral position by buying BTC spot (going long) and selling its corresponding futures contract (going short) when it's at a premium.
Investment inflows into cryptocurrency products were notably high for the week ending June 7, data from Farside Investors and CoinShares shows, but Bitcoin's price remained stable. This has raised questions as to why the increased inbound investments did not lead to a surge in price. Glassnode suggests that heightening cash-and-carry trades, where traders take long positions in U.S. Spot ETFs and short futures on the CME Group exchange, have significantly dented the influence of buy-side inflows on ETFs. The trend seems to be ongoing for the time being.
Glassnode's Spot Cumulative Volume Delta (CVD) metric, which represents the net bias in market taker buy vs. sell volume in U.S. dollar terms, reveals that a net sell-side bias currently prevails in the spot market. This suggests that demand is roughly equal to sell-side pressure, maintaining a 'price equilibrium'.
Despite Bitcoin's unchanging price, current holders are still realizing profits of 120%, observes Glassnode. However, the amount of volume processed and transferred on the Bitcoin Network has significantly dropped ever since Bitcoin's peak price was hit. This points to a decreasing enthusiasm for market speculation and a growing uncertainty among investors.
Market intelligence firm IntoTheBlock's data shed further light on the standoff between buyers and sellers. According to its 'in/out of the money around price' (IOMAP) model, Bitcoin's current price is sandwiched between two crucial price levels. Strong support exists in the $61,000 to $65,000 range, where around 807.83 million BTC were previously purchased by 2.61 million addresses. In contrast, a robust resistance level between $65,100 and $72,500 is holding back the bulls, with about 2.94 million BTC previously purchased by an estimated 5.2 million addresses in this range.
Glassnode asserts that while demand has been vast enough to counter sell-side pressure, it hasn't been substantial enough to ignite further upward momentum, resulting in a 'price locked' scenario. A balance appears to have been struck between demand and selling pressure, leading to a stable price and a marked reduction in volatility. Please note that this article is informative in nature and does not qualify as investment advice. Investments and trading moves entail risks, and due diligence must be carried out before any decision-making process.
Published At
6/19/2024 11:07:12 PM
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