1. Binance overthrown

The recent surge in Bitcoin's price has been accompanied by a significant development in the derivatives market: open interest (OI) on CME Bitcoin futures has surpassed that of Binance. This milestone marks a turning point in the institutional adoption of Bitcoin and signals a potential shift in the dynamics driving the cryptocurrency's price movements.

CME, a regulated derivatives exchange, has long been favoured by institutional investors due to its transparency, regulatory oversight, and robust infrastructure. The rise of CME's Bitcoin futures OI indicates that institutional investors are increasingly comfortable trading Bitcoin in a regulated environment. This trend is likely driven by several factors, including:

Growing recognition of Bitcoin as an asset class: Bitcoin has gradually gained acceptance among institutional investors as a legitimate asset class with the potential for long-term appreciation.
Increased demand for Bitcoin hedging and risk management tools: As Bitcoin's market capitalization grows, institutional investors are seeking ways to hedge their portfolios and manage risk associated with Bitcoin exposure. CME's futures contracts provide a convenient and regulated mechanism for achieving these objectives.
Regulatory clarity and infrastructure development: The development of clear regulatory frameworks and the expansion of custody and prime brokerage services have made it easier for institutional investors to participate in the Bitcoin market.

The surpassing of Binance's OI by CME suggests that institutional investors are playing a more prominent role in driving the recent Bitcoin rally. Binance, an offshore exchange, has traditionally been the dominant venue for retail and VC-driven Bitcoin trading. However, the shift to CME indicates that institutional demand is now outpacing retail and VC activity.

2. Incoming liquidity

After a prolonged period of red flags, the cryptocurrency liquidity profile (stablecoins aggregated MC % change) has finally flipped green, indicating a significant shift in market sentiment and a potential resurgence of the bull market. This positive development is particularly noteworthy considering the 90-day lag associated with liquidity data, suggesting that inflows into the crypto market began as early as August.

The return of liquidity is a crucial factor in driving market growth as it signifies that there's capital inflow into the industry via stablecoins. With ample liquidity available, traders are more confident in executing trades without fear of slippage or excessive price movements. This increased confidence, in turn, fuels further investment and drives price appreciation.

The timing of this liquidity surge aligns with the observation that the bull market may have already commenced in August. While the green liquidity profile is a lagging indicator, its emergence suggests that the underlying market dynamics have been favourable for bulls for several months.

This scenario implies that investors who have been waiting for the liquidity profile to turn green before turning bullish may have missed out on some of the early gains. However, the overall outlook remains positive, and the party is far from over. The crypto market is still in its early stages of development, and there is ample room for further growth.

3. Transaction fees on the rise

The recent resurgence of ordinals, a technology that enables the embedding of data into Bitcoin transactions, has led to a notable uptick in fees on the Bitcoin network. This increase in fees, which surpassed those of Ethereum for the first time since 2020, highlights the ongoing evolution of Bitcoin's use cases and the potential for increased network utilization.

Ordinals, first introduced in January 2023, allow for the encoding of arbitrary data into Bitcoin transactions, creating a unique form of digital collectables and non-fungible tokens (NFTs) on the Bitcoin blockchain. While ordinals initially faced criticism due to concerns over potential network congestion, their recent resurgence suggests a growing interest in this novel application of Bitcoin technology.

The increase in ordinals-related activity has translated into higher fees on the Bitcoin network. Transaction fees, which are paid to miners for prioritizing and processing transactions, are determined by a combination of factors, including network congestion, transaction size, and miner demand. With more ordinals-related transactions competing for block space, fees have naturally risen to incentivize miners to prioritize these transactions.

The surpassing of Ethereum's fees by Bitcoin is a significant milestone, as Ethereum has long been considered the dominant blockchain for NFTs and other data-intensive applications. This shift suggests that Bitcoin, with its established security and network resilience, is also capable of supporting these types of applications.

4. Don't let me fall

ETH/BTC ratio has seen a rebound this November, after hitting the 3AC liquidation point over a year ago. The BlackRock spot ETH ETF filling approval has also added steam to the rally.

The ETH/BTC ratio, which measures the relative value of Ethereum (ETH) to Bitcoin (BTC), experienced a slight rebound in November, after hitting the 0.05 level for the first time since the Three Arrows Capital (3AC) liquidation event in June 2022. This resurgence can be attributed to a combination of factors, including the anticipation of BlackRock's spot Ethereum exchange-traded fund (ETF) approval and the growing recognition of ETH's unique value proposition.

The potential approval of BlackRock's spot ETH ETF has injected significant optimism into the Ethereum ecosystem. BlackRock, the world's largest asset manager, has a long history of introducing traditional investors to new asset classes, and its entry into the ETH ETF space could signal a broader adoption of Ethereum among institutional investors. This influx of institutional capital could provide a strong tailwind for ETH's price and contribute to the overall rally in the ETH/BTC ratio.

And that's it for this week.

Have a great weekend everyone.

- Pascal

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