First Mover: Collapsing Bitcoin Futures Premium Offers Glimpse of New Digital Money Market

First Mover: Collapsing Bitcoin Futures Premium Offers Glimpse of New Digital Money Market

Dollar-linked "stablecoins" provide the liquidity to fund exotic cryptocurrency trades. (Waterfall at Mont-Dore by Achille-Etna Michallon, from the Metropolitan Museum of Art archives, modified by CoinDesk)

traded slightly higher early Thursday at $11,772 after falling for two straight days. 

The largest cryptocurrency by market capitalization has declined 1.3% this week as the U.S. dollar strengthened in foreign exchange markets. The greenback gained support Wednesday as the Federal Reserve said it wasn’t immediately planning to implement a “yield curve control” program that probably would have brought an accelerated pace of money printing.

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“The corrective moves we witnessed are necessary for the market to cool down and catch a breath,” Joe DiPasquale, CEO of the cryptocurrency investment firm BitBull Capital, told CoinDesk in an email. “Moving forward, we can expect the market to lean on the support zone between $11,000 and $11,500 to consolidate and try another push above $12,000.”

Bitcoin’s mini sell-off this week has revealed a key feature of fast-evolving cryptocurrency markets: How dollar-linked “stablecoins” are being used to fund exotic futures trades, similar to the way money markets serve as a vital lifeblood on Wall Street.

As flagged earlier this week by the Norwegian cryptocurrency-analysis firm , prices for bitcoin futures contracts on the Chicago-based CME exchange have been trading well above “spot” prices for the underlying security. That premium rose last week to 20%, the highest in five months, seen as a sign of just how bullish big investors have become on bitcoin. 

This week’s retreat in prices below $12,000 has led to a squeeze for traders who were attempting a “cash and carry arbitrage,” as reported Wednesday by . It’s a strategy in which traders buy bitcoin and then short futures contracts on the cryptocurrency, betting the prices will eventually converge and the premium will be . 

The annualized premium dropped to 14% in under 48 hours as prices slid, and some traders rushed to unwind their arbitrage trades. 

One lesson from the episode is that traders were apparently using stablecoins such as tether () to fund the trade, according to Godbole. 

“Stablecoins are widely used as funding currencies, and there has been a high demand for these dollar-backed cryptocurrencies from institutions,” Skew CEO Emmanuel Goh told Godbole in a Telegram chat.

Bitcoin’s recent price pullback may worsen as the U.S. dollar shows signs of life on the back of  from the Federal Reserve’s meeting in July. 

– Omkar Godbole

Ren (REN) is benefiting from : Prices for the Ren token have doubled in the past few days. Like other protcols designed to produce synthetic version of cryptocurrencies, RenVM takes bitcoins and produces an ERC-20 token called renBTC that can be used in Ethereum-based applications. More than 10,000 of the tokenized bitcoin, renBTC, were locked on Monday, according to . RenBTC currently represents  of the tokenized bitcoin market, ranking it second behind wrapped bitcoin (WBTC).

Rates to borrow the Synthetix stablecoin sUSD monetarily spiked to almost 50% Wednesday on Aave’s decentralized lending platform. The cause? According to Stani Kulechov, chief executive of Aave, users were clamoring for the dollar-linked sUSD tokens to send to Curve, so they could participate win that protocol’s CRV tokens via “yield farming.” Prices for CRV were trading at $4.35 at the time of writing, up 14.8% in the past 24 hours, according to CoinGecko. As  put it earlier this week, it’s a “summer of crazy returns” in ” .”  

Aave (LEND) is seeing a surge in transactions to go with its : “Despite  about the actual value locked being significantly smaller than reported in DeFi Pulse, on-chain activity for these protocols and their tokens demonstrate thriving activity,” according to a . The decentralized lender’s token is up 29-fold this year, for a market valuation of $700 million, inspiring incredulity. The bull case is that “there is no denying that these innovations have the potential to redefine finance as we know it,” IntoTheBlock wrote. CoinDesk’s Will Foxley reported last week that Aave plans to work the firm RealT to . 

-Muyao Shen

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