BTC: Crypto Bull Market Appears to Take HoldCME: Micro BTC ( CME:MBT1! )
A month’s ago, I published a trade idea titled “S&P 500: Expensive but Not Overpriced.” The S&P index closed at 4,409.16 on June 16th, placing it at one standard deviation above the three-year mean (µ) of 4027.2 at the time.
On July 14th, the S&P settled at 4,505.42, up 100 points and +2.2% within a month. Market data has confirmed my bullish assessment. However, higher prices also mean that the index is getting more expensive now and edging closer to the “overpriced” territory.
The S&P reached its all-time high of 4796.56 on January 3rd, 2022. Current price level is just 5.7% below this record. It takes a lot to make the case for a new high. Everything needs to work out just right – inflation, employment, GDP, etc. It probably could happen somewhere down the road when the Federal Reserve cuts interest rates.
Meanwhile, there are “less expensive” financial instruments to consider if you are looking for ways to allocate your asset.
On March 29th, I issued this trade idea – “Crypto Staged a Strong Comeback in Q1”. Cryptocurrencies rebounded strongly amid turmoil in the financial markets. Bitcoin and ETH gained 71% and 39% in Q1, respectively. The main driver was flight-to-safety when a series of US bank failures shocked the financial markets.
On July 16th, BTC/USD closed at $30,394, up $2,300 since I wrote the report, and gained 83% year-to-date. While this year’s crypto rebound has been remarkable, spot bitcoin price is still -$38,395, or -55.8% off its record high of $68,789.63.
Plotting BTC and E-Mini S&P 500 futures in a 5-year timeframe, we find that both reached their all-time high in the last two years. The S&P experienced a 20% drawdown last year, driven by high inflation and Fed rate hikes. It regained 26% from its October low when the fundamentals were reversed – lower inflation and the potential of Fed Pivot.
Bitcoin followed the same general trend as the S&P but is more speculative in nature. Bitcoin rose ten times in one year, only to crush by 80 percent in the following year. Since its November low, bitcoin price has nearly doubled, but it is only halfway to its recent high.
The Crypto Market Shrugged off its Biggest Fear
In the March 29th trade idea, I expressed concern about the unique risk in the Crypto market – the failure of systemic important infrastructure that could doom the entire market.
Last year, the collapses of stablecoin terraUSD, the No. 2 crypto Exchange FTX and crypto lender Silvergate sent spot bitcoin price from FWB:67K all the way to $16K. The entire Crypto market lost $1.4 trillion in market valuation.
Last month, the SEC sanctioned the largest crypto Exchange Binance for violations of US securities laws. Bitcoin pulled back a few percentage points and then quickly recovered. Why the market reacted coolly this time around? Unlike the sudden demise of FTX, the SEC charges to Binance were well anticipated. Investors absorbed the news and took actions in an orderly fashion, escaping a market panic.
In my view, investors have regained confidence in the crypto market, following all the turmoil.
Supporting my view is Coinbase’ YTD performance ( NASDAQ:COIN ). The publicly traded US Crypto Exchange has received multiple regulatory charges and lawsuits. However, its stock is up 214% YTD. Coinbase reportedly had 108 million users in 2022, up from 56 million in 2021.
The news headlines around BlackRock’s Bitcoin ETF prospects boost institutional investor sentiment, too. Last Thursday, BlackRock's application to offer a spot Bitcoin ETF has been added to the official docket of the SEC as part of its proposed rule change process.
The large investor base in both individual and institutional markets will be a big catalyst to lift bitcoin higher in a secular bull market.
Micro BTC Futures
CME Micro BTC futures (MBT) is a low-cost trading tool to participate in the crypto market. Contract notional is 1/10 of 1 BTC. Initial margin is $760. What this means is a 400% leverage built in the futures contract. At market price of $30,235 per bitcoin, the $760 margin is equivalent to about 25% of the contract notional value of $3,023.50.
Micro BTC is trading in US dollars that tracks the bitcoin price index. Both the initial investment and the returns are in dollar terms. Traders do not need to worry about the security of their Crypto wallet or forgetting their privacy key.
While investing in the CME market, investors could rest assured that their money is free from default risk and counter-party risk. In its 175-year history, there was never a case of clearing member default resulting in a loss of customer fund.
Happy trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
