Market Wrap: Bitcoin Ends Week Notching 14% Gain

Bitcoin ended the week performing strong, gaining nearly 14% as regulatory fears faded and sentiment turned bullish in anticipation of a bitcoin futures-backed exchange-traded fund (ETF) in the U.S. by the end of the year.

Over the past 24 hours, bitcoin stayed roughly flat, hovering above $54,000 as of Friday afternoon. The largest cryptocurrency by market capitalization also surpassed $1 trillion again this week.

“We have broken the key point of breakdown level from May, which was around $50K,” wrote Blockware Intelligence in a research report. “In the short term, we are seeing some resistance from this last $56K-$58K area, which is not unexpected as there is a fair amount of overhead supply there from earlier this year.”

Bitcoin briefly broke above $56,000 early Friday, notching its highest level since May, before declining to around $54,000. Some analysts attributed the overall surge to Chinese buyers returning after the market settled after the initial news of China’s crypto ban.

“It appears as if the return of Chinese participants provided some fuel to the recent BTC fire, pushing prices temporarily above $56K overnight,” Armando Aguilar, FundStrat Global Advisors vice president of Digital Asset Strategy, told CoinDesk. “There was a similar risk-on sentiment in Chinese equity markets, with the Shanghai Composite closing up 0.67% in its first day back trading post-holiday.”

CME open interest also neared a record high on Friday, continuing its upward creep since the start of the week.

“We’re seeing a pickup in spot trading volume, but most activity is in the futures market to build exposure without putting up 100% of capital,” Finxflo’s head of Institutional Sales, Jeff Reed, told CoinDesk.

Latest prices

• Bitcoin (BTC): $54,494, +0.9%
• Ether (ETH): $3,617, +0.4%
• S&P 500: -0.2%
• Gold: $1,758, +0.0%
• 10-year Treasury yield closed at 1.605%

Optimism over a futures-backed bitcoin ETF

Investors are growing antsy for a futures-backed bitcoin ETF to be approved in the U.S. An ETF would provide an easily accessible way for more retail and institutional investors to get involved in cryptocurrency. Some analysts point to the growing difference between BTC futures and spot prices as evidence of this optimism.

“The basis for CME futures has increased both on an absolute level and on a relative comparison with futures that trade on offshore derivative venues,” NYDIG’s global head of research, Greg Cipolaro, wrote in a research note. “Today the basis premium for futures traded on OKEx versus CME has flipped to a discount as CME futures are now trading at a basis premium for the first time.”

In August, a speech by SEC Chairman Gary Gensler hinted his agency would support a futures-based ETF based on his reading of the Investment Company Act of 1940 (commonly referred to as the ‘40 Act).

Gensler said that “when combined with the other federal securities laws, the ‘40 Act provides significant investor protections. Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded bitcoin futures.”

Previously, applications for bitcoin ETFs holding bitcoin sought to register under the Securities Act of 1933 (’33 Act) because bitcoin is not considered a security by the SEC.

However, registration under the ‘40 Act is more appropriate for a fund engaged in a bitcoin futures strategy, as such funds will “generally hold fixed-income securities as a margin for the futures,” according to a report from NYDIG.

Bitcoin, Ethereum usage picks up

Price rallies for both bitcoin and ether may be driven by increased usage of their respective networks.

Ether was trading at over $3,600 on Friday afternoon, a 10% weekly gain.

For Ethereum, network usage has led to deflationary pressures as the ether used to pay transaction fees are being taken out of circulation, or “burned.” This has historically led to higher prices.

“Ethereum has been net deflationary over the past two days where the total supply of ether has decreased,” Fundstrat’s Will McEvoy told CoinDesk. “We attribute much of this to an increase in NFT sales, which have doubled since early September and generally require higher transaction fees to complete.”

Bitcoin network usage has similarly picked up over the past several months. Both layer 1 and layer 2 usage has been increasing since July 1, according to Coin Metrics analyst Nate Maddrey.

“Monthly unique active BTC addresses have rebounded back to about 17M after a drop-off following the May crypto crash,” Maddrey said.

The number of new BTC addresses has also been trending upwards since Q2. There were nearly 480,000 new bitcoin addresses created on Oct. 5, the highest number since May 13, according to Coin Metrics.

Altcoin roundup

• Alchemix to expand collateral types, strategies for its “self-repaying” loans: Decentralized finance (DeFi) protocol Alchemix revealed plans for the second version (v2) of its platform on Friday, reported CoinDesk’s Andrew Thurman. The protocol is conceptually similar to MakerDAO, which takes token collateral and issues a heavily over-collateralized stablecoin loan in return. Alchemix, however, takes yield-bearing collateral and uses the yield to pay down the user’s collateral balance: a self-repaying loan. Alchemix is currently the 37th-ranked DeFi protocol with $1.06 billion in total value locked (TVL).
• Tether has loaned $1 billion to Celsius Network: Tether, the issuer of stablecoin $USDT, has loaned $1 billion to Celsius Network, a crypto lender that is under investigation by several U.S. state financial regulators, reported CoinDesk’s Jamie Crawley. Celsius Network CEO Alex Mashinsky said the company pays an interest rate of 5%-6% to Tether, Bloomberg reported Thursday as part of an investigation into the stablecoin provider’s reserves. The investigation found that Tether had loaned billions of dollars to crypto companies, using bitcoin as collateral.

Relevant News

• JPMorgan Says Institutional Investors Are Replacing Gold With Bitcoin
• Google Pay to Support Bakkt Debit Card
• Binance.US Bumps Brian Shroder to CEO; CFO Departs
• Powerbridge to Deploy 2,600 Crypto Mining Rigs in Hong Kong

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Notable winners as of 21:00 UTC (4:00 p.m. ET):

• Filecoin (FIL), +8.4%
• Polygon (MATIC), +8.2%

Notable losers:

• Uniswap (UNI), -2.5%
• Stellar (XLM), -2.3%