Bitcoin’s “Death Cross” debunked. BTC futures in the CME reach record low implied yields.

The Bitcoin Economic Calendar:
Week of Monday June 21st to Sunday June 27th.
Market Commentary:

Bitcoin: It was a volatile week for bitcoin, crossing north of $40k on Monday and reaching a peak of $41,341 on Tuesday, then slowly giving back all gains to settle the week at $35,589, down -8.78%.

Early this morning a headline broke stating that the Agricultural Bank of China issued a statement prohibiting the use of its services for virtual currency transactions. This has sent the market lower and it will likely remain in high alert while the market awaits for potential follow-on from this announcement.

The price move also ushered in a popular indicator, the “death cross”. In plain English - this means that bitcoin’s 50-day moving average price “crossed over” its 200-day moving average price.

What happened the last 3 times we saw the “death cross” in bitcoin? The following charts show bitcoin price moves 30 days after the “death cross” was signalled.

In the 30 days after the March 31st, 2018 “death cross”, bitcoin moved higher by +37%.

In the 30 days after the October 25th, 2020 “death cross”, bitcoin moved lower by -19.88%.

Lastly, after the March 24th, 2020 “death cross”, bitcoin rallied by +13.53% in the 30 days following.
Considering that bitcoin has been higher after 30 days 2 out of the last 3 times we saw the “death cross”, we thought it was prudent to highlight that - although it has a scary name, it is not necessarily correlated with negative price moves.
Looking at some market fundamentals, signs of institutional activity continue.

For further emphasis on this point, the implied basis on the CME futures contracts (the difference between the spot price of bitcoin and the future price in those contracts) has reached all-time lows in the 1-month and 3-month contracts.

This tells us that institutions are happy to book a very small yield to participate in this trade - and they keep compressing the implied returns.
As we have covered in the past, this is a benchmark yield in the bitcoin industry. This yield dropping means that there is more financing available and more liquidity in these bitcoin futures markets. Over time, this should lead to reduced price volatility.

What's ahead for the week:

In last week’s meeting, the Fed signalled that it was discussing potentially tapering its bond-buying program. The statement set off volatility in the U.S. yield curve and in the markets.
Fed activity continues in the week ahead - and the market will listen intently as it continues to search for clues.

Tuesday:
At 10 AM EST, we get Existing Home sales. A lower-than-expected reading will strengthen the Fed’s “transitory” inflation view.
At 2 PM EST, Jerome Powell will be testifying before the U.S. House of Representatives on the Fed’s response to the Coronavirus Pandemic. Look for Powell to address the unemployment situation in this speech.

Wednesday:
Governor Michelle Bowman speaks at 9.10 AM EST on Community Development and Economic Resilience.
Manufacturing and Services Purchasing Managers Index at 9.45 AM EST and New Home Sales at 10 AM EST.

Friday:
Personal Consumption Expenditures Inflation index data comes out at 8.30 AM EST. The Fed’s projection for PCE inflation in 2021 is 4.3%. This is one of the Fed’s favourite indicators and it will likely show a similar trend to the recent Consumer Price Index reading of +5%. Look for markets to cheer a number below +4.3% - and the opposite could happen if we get a higher number.

On the bitcoin front, that large short position that we had highlighted on Bitfinex last week has covered more than 50% of the open position with the recent move down.

This is a potentially good sign. Looking at the price action, that position may be looking to fully close out in the $30-$35k range.
Several factors point to the $30k level being a very important one for bitcoin. It will be a key one to watch in the week ahead.

It's a big week coming up, and as always, we'll keep you posted on any relevant news throughout the week right here and from our Twitter account @hodlwithLedn.