Third Time’s the Charm

Sunday night, we saw the $10,000 support level get cracked for a second time, although it was able to hold. Will the saying, “third time’s the charm” apply for BTC?

It will be interesting to see with this negative press regarding national security issues here in the US over Libra as well as President Trump’s tweet disliking crypto, if the $10,000 level can hold. We still stand by our comments made in our July 2nd morning report, “$10,000, because it’s a round number, seems to be holding so far, but in reality, firm support should form above the $8,700 area, where this massive rally seemed to launch off from. If we really collapse through that support, one can point to the $5,000-$6,000 area, where grind higher began back in early May.”

We have made some observations over the past few weeks watching the spot market trade versus the CME Futures markets. We have noticed a trend where it appears that on every up move in BTC price, the CME futures have outpaced the spot market. On the down moves, the spreads that have blown out seem to correct itself. As of Thursday last week, the futures curve that was in steep contango has collapsed in to be the most ‘flat’ we’ve seen on this month long rally.

As we discussed back in February, the futures curve is a proxy for the borrow/lend market. When the contango gets too steep, there are ‘arbitrage’ opportunities that should allow a trader to buy spot and sell the futures, causing these spreads to naturally come back into line. As the futures come close to expiry, their spread should eventually converge, generating a profit on the spread (with additional potential yield gained on loaning the long physical BTC asset).

If we observe these spreads between spot and futures widen out again, that sign tells us we will likely test the near-term highs. However, if the spreads remain compressed, we shall remain range-bound and/or continue to test these levels of support.

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