Image 2: CME Group Bitcoin futures volume and open interest

Image 2: CME Group Bitcoin futures volume and open interest
Source: QuikStrike

In the above chart, we can see this in the volume and open interest chart for Bitcoin futures from CME Group. I can see the higher and higher peaks in volume around the expiration months but also, most importantly, we can see the slow and steady progression of open interest. The suggests to me that traders are getting more comfortable with the futures market, whether used for hedging purposes or for tactical directional trading. The patterns suggest we may continue to see higher highs in volume and open interest as we move into 2024a new year.

Image 3: Premium or discount to Net Asset Value for Grayscale Bitcoin and Ether products

Image 3: Premium or discount to Net Asset Value for Grayscale Bitcoin and Ether products
Source: Bloomberg

Another place I can see that enthusiasm is returning to the Ccryptocurrency markets is by looking at the discount to net asset value for the Grayscale products. The bBitcoin discount is on the left and the eEther discount is on the right. Both discounts peaked last fall at the time of the FTX bankruptcy and the peak of the crypto winter at more than 50% discount. It took some time for these discounts to start to narrow, but over the last two months, both have narrowed sharply to the low double digits. While it is not uncommon for a closed- end fund to have a discount of approximately 10%, if these funds are able to convert into spot ETFs, there still may be scope for this to fully collapse. While I am not making a comment on where these discounts should end up, the closing of the discount from more than 50% to about 11% tells me enthusiasm is returning to crypto.

Image 4: Coin market capitalizations – total market on the left and alt coins on the right

Image 4: Coin market capitalizations – total market on the left and alt coins on the right
Source: Coinmarketcap.com

Another way one may discern this investor enthusiasm is by plotting the market capitalization for crypto. On the left is the market capitalization for all coins, and while it is well off its highs from 2021, there has been a steady march higher all year long. The graph on the right excludes Bitcoin, Ether, Binance Coin, Ripple, and the stable coins. This is my proxy for the alt coins. We can see an even steeper climb in the market capitalization of these products. I think of this as the riskier asset space within cryptocurrencies and to see renewed interest in these coins suggests traders are really warming to the story. That being said, there may be more room to run as we are still well off the highs on both accounts.

Image 5: Commitment of Traders graph for Bitcoin futures

Image 5: Commitment of Traders graph for Bitcoin futures
Source: CME Group Commitment of Traders

Image 6: Daily candle chart for the generic first Bitcoin futures contract

Image 7: Weekly candle chart for generic front month Bitcoin futures

Image 8: Logarithmic chart of Bitcoin spot with vertical lines drawn at Bitcoin halving events

Image 9: Implied volatility surface for Bitcoin options

Image 10: Expected return for a bitcoin January put-spread collar

Image 11: Expected return for a bitcoin January 1 by 2 call spread

Image 12: Simulated expected return for both the put spread collar and ratio call spread

Image 13: Simulated PNL for both spreads in either a down or an up market