Last week, Bitcoin experienced a significant surge, with its price increasing by 17%. This marks its second-best week of the year, just shy of the 22% climb in the week ended March 3. To comprehend whether this rally can continue or if it represents a local top, let’s delve into the details.
Spot Volume on Coinbase Soars
One key indicator of Bitcoin’s price movement is its spot volume on Coinbase. According to Glassnode data, the cumulative volume delta (CVD) has seen a significant spike, with most of the activity coming from this popular crypto exchange. The CVD measures the net difference between buying and selling trade volumes, highlighting the difference in volume where the buyer or seller was the aggressor.
Coinbase Premium Index: A Key Indicator
The Coinbase Premium Index (CPI) is a crucial metric to monitor when analyzing Bitcoin’s price movement on Coinbase. The CPI has seen a notable spike, coinciding with the surge in spot CVD. By examining the CPI over the past three years, it becomes apparent that high levels of activity on Coinbase often correspond to local highs and lows.
Basis Trade or True Bitcoin Buying
There is ongoing debate about whether inflows into U.S.-listed spot exchange-traded funds (ETFs) represent true buying pressure or are part of a strategy known as the basis trade. The basis trade involves an investor holding a long position in an ETF while taking a short position in the Chicago Mercantile Exchange (CME) futures market, capturing the price spread.
Understanding the Basis Trade
At the start of the year, when the ETFs were introduced, there was a significant influx of investment. However, since then, Bitcoin has largely held steady, indicating that the ETFs did not have as substantial an impact on the price as initially thought. This is due in part to the fact that the ETFs operate a delta-neutral strategy.
CEOs’ Insights and Analyst Observations
The CEO of crypto index provider CF Benchmarks recently commented that 40% of the ETF inflows were directly related to the basis trade. However, as the ETF inflows continued to set records, open interest in the CME exchange did not follow suit.
Bitcoin analyst Checkmate has also observed this trend: "Spot bitcoin ETF inflows have massively outpaced the growth in CME open interest last week. True directional spot buying has returned."
FOMO and Momentum Buyers
With Monday likely to see FOMO (fear of missing out) and momentum buyers joining the fray, it’s essential to understand whether this rally can continue or if it represents a local top.
Exchange Balance Hits Year-to-Date Low
According to Glassnode data, Bitcoin on exchanges has hit a year-to-date low at 2.95 million BTC. Since the Nov. 5 election, there has been a reduction of some 40,000 BTC, indicating that demand is coming from multiple exchanges such as Coinbase, Binance, and Bitfinex.
Lower Exchange Balances Indicate Increased Demand
A lower balance on exchanges signifies that Bitcoin owners are looking to buy more Bitcoin. This trend suggests that the current rally may not be a local top but rather a sign of increased buying pressure.
Comparing ETF Inflows with CME Open Interest
To better understand the basis trade’s impact, let’s examine the scale of the ETF inflows and compare them to the growth in CME open interest.
| Exchange | Total Inflows (in BTC) |
| — | — |
| Coinbase Pro | 24,111.58 |
| Binance US | 23,449.69 |
| Bitfinex | 11,911.59 |
As seen above, the total inflows into these exchanges have been significant. However, it’s essential to consider that open interest in the CME exchange has not followed suit.
Conclusion
The current rally in Bitcoin is a complex phenomenon, with various factors contributing to its growth. By examining the spot volume on Coinbase, the Coinbase Premium Index, and the basis trade, we can gain a deeper understanding of whether this rally will continue or if it represents a local top.
Recommendations
- Monitor exchange balances: Keep an eye on Bitcoin’s exchange balance as it may indicate increased buying pressure.
- Watch for CPI spikes: Be aware of high levels of activity on Coinbase, which often correspond to local highs and lows.
- Understand the basis trade: Consider whether ETF inflows are part of a strategy or true directional spot buying.
By staying informed about these key indicators, investors can make more informed decisions about their investments in Bitcoin.
