Bitcoin (BTC) and Ether (ETH) have continually surged toward record highs, causing the futures market of Bitcoin to see a substantial increase in volume and open interest. The term “open interest” refers to the total sum of active trades in the Bitcoin derivatives market. Currently, the open interest of the Bitcoin futures market is hovering at historic highs, currently $27.43 billion.
Following the Coinbase listing, traders and investors generally anticipate the uptrend of Bitcoin and Ether to continue. But there are also short-term bear cases due to various factors such as a potential “sell-the-news” scenario and an overheated futures market.
The bull case for post-Coinbase listing
According to Adam Cochran, partner at Cinneamhain Ventures, Bitcoin should theoretically be at $70,000 going into the Coinbase listing. The investor said that the reason behind BTC’s gradual uptrend is the use of heavy leverage in the Bitcoin futures market, causing BTC to drop when the derivatives market gets overheated.
High leverage can cause short-term drops to occur because when there is a significant percentage of highly leveraged buy orders or longs in the market, the funding rate increases. Funding is a mechanism used by Bitcoin futures exchanges to achieve balance in the market.
When there are more buyers in the market, the funding rate increases. When the funding rate rises, buyers have to compensate short-sellers with a portion of their position. Since buyers have to pay sellers every eight hours to keep their positions open, it becomes less attractive to long Bitcoin, making it vulnerable to a drop. Cochran said:
“It’s crazy that we hit a new $BTC ATH the day before Coinbase lists, and kicks off 6 months of new roll outs, upgrades and institutional adoption with ETFs, etc. And it *STILL* doesn’t feel like we’ve got feverish 2017 levels of mania and FOMO yet. It just feels...on track?”
He further added: “The only reason $BTC isn’t at $70k already is because the retail-kiddies don’t know how to use leverage without getting mega-nuked at every all time high.”
Despite the price of Bitcoin hovering at an all-time high, the relative strength index is lower than where it was during the 2017 peak of the previous bull run. When the price of Bitcoin violently dropped in a short period, its RSI was at around 95. Currently, the RSI is at 92, which is lower than the tops of both the 2017, 2013 and 2011 rallies.
PlanB, the creator of the Stock-to-Flow indicator — which predicts Bitcoin will likely reach $200,000 — said that BTC would have to rally toward $92,000 to hit an RSI of 95. The analyst said: “#Bitcoin is looking strong at RSI 92.”
The price of Bitcoin is strongly rallying in anticipation of Coinbase’s public listing. Investors and traders generally believe that the cryptocurrency market will continue on an upward trajectory post-Coinbase listing, mainly due to the strong momentum of the market. However, there are some who believe that the listing of the stock, which will trade under the ticker “COIN,” will mark a temporary top for cryptocurrencies.
On-chain data also suggests that Bitcoin is in a favorable position to see a broader rally. Elias Simos, protocol specialist at Bison Trails, said that the supply of Bitcoin among addresses that hold 100 to 1,000 BTC has hit an all-time high. This indicates that the number of high-net-worth investors holding Bitcoin is increasing. He stated:
“The supply of $BTC in addresses that hold between 100 and 1k of the coin has hit an all time high! This growth has come at the expense of both the cohorts right below (1-100) and above (1k-10k). The reshuffling continues unabated.”
Atop the technical and fundamental strong points of Bitcoin heading into the Coinbase public listing, the general sentiment around the event remains overwhelmingly positive. Nic Carter, a long-time Bitcoin investor and researcher, said COIN is gearing up to be one of the most explosive public listings in the history of the United States stock market:
“As COIN gears up to be the most explosive public listing in history; GBTC eyes GLD for the title of largest commodity tracker; and BTC exceeds the value of the monetary base of the Pound Sterling; Take a minute to let it sink in. Then get back to work.”
Although a big part of the interest comes from the fact that the stock market is seeing the first debut of a major U.S. crypto exchange, Coinbase’s financials have impressed investors in the traditional financial market. Anthony Pompliano, a noted Bitcoin investor and co-founder of Morgan Creek Digital, pointed out in early April that Coinbase made more in revenue in the previous 90 days than it did in all of 2020.
The bear case following the Coinbase listing
The primary bear case surrounding the Coinbase listing remains the high probability of a “sell-the-news” drop in the cryptocurrency market. Atop this, there is a chance that buyers will rush into COIN, possibly selling Bitcoin, Ether and other major cryptocurrencies in the process.
Mohit Sorout, partner at Bitazu Capital, also emphasized that he believes the final leg of the Bitcoin bull market is approaching, based on historical trends. He said, “Truth be told I seriously think we’ve entered the final leg of this $btc bull market. To be clear, final leg could be 2-3 weeks or even more. Price could reach 200k or even more who knows. Just don’t make irrational life decisions based on unrealized PnL.”
On top of the possibility of a peak approaching for the cryptocurrency market, the funding rate of the Bitcoin futures market is at around 0.11% on average. The default funding rate of Bitcoin is 0.01%, so this is 11 times higher. Hence, the likelihood of a flush correction in the short term remains relatively high.